Q6. On August 1, 2016, Limbaugh Communications issued $22 million of 11% nonconvertible bonds at 105. The bonds are due on July 31, 2036. Each $1,000 bond was issued with 40 detachable stock warrants, each of which entitled the bondholder to purchase, for $50, one share of Limbaugh Communications no par common stock. Interstate Containers purchased 20% of the bond issue. On August 1, 2016, the market value of the common stock was $48 per share and the market value of each warrant was $10 In February 2027, when Limbaughs common stock had a market price of $62 per share and the unamortized discount balance was $2 million, Interstate Containers exercised the warrants it held.

1. Prepare the journal entries on August 1, 2016, to record the issuance of the bonds by Limbaugh.

2. Prepare the journal entries for Limbaugh in February 2027, to record the exercise of the warrants.