Question 1 (Issuance of Bonds with share warrants):

On August 1, 2018, ABC Corporation issued $80 million of 8% nonconvertible bonds at 105. The bonds are due on July 31, 2028 (10 years). Each $1,000 bond was issued with 8 detachable share warrants, each of which entitled the bondholder to purchase, for $40, one share of ABC Corporation's ordinary shares. HKU Co. purchased 40% of the bond issued. On August 1, 2018, the market value of the ordinary shares was $65 per share and the market value of each warrant was $15. On February 1, 2019, when ABC Corporation's ordinary shares had a market price of $70 per share, HKU Co. exercised the warrants it held.

Required:

1. Prepare the journal entries on August 1, 2018, to record the issuance of the bonds by ABC Corporation.

2. Prepare the journal entries for ABC Corporation on February 1, 2019, to record the exercise of the warrants by HKU Co