On January 2, 2018, Rushmore, Inc. issued 8,000 bonds at $1,080 each. Each bond contains 40 stock warrants, each of which gives the owner the right to purchase one share of Rushmore $10 par value common stock at $50. The current selling price of common stock is $40 per share. Rushmore bonds without stock warrants are currently selling for $1,025.
Required:
1. Prepare the journal entry to record the sale of the bonds if the warrants are nondetachable.
2. Prepare the journal entry to record the sale of the bonds if the warrants are detachable using the incremental method.
3. Prepare the journal entry to record the exercise of all detachable warrants on October 5, 2020, when the market price of the stock was $60, using the incremental method.

Question

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The Answer of On January 2, 2018, Rushmore, Inc. issued 8,000 bonds at $1,080 each. Each bond contains 40 stock warrants, each of which gives the owner the right to purchase one share of Rushmore $10 par value common stock at $50. The current selling price of common stock is $40 per share. Rushmore bonds without stock warrants are currently selling for $1,025.
Required:
1. Prepare the journal entry to record the sale of the bonds if the warrants are nondetachable.
2. Prepare the journal entry to record the sale of the bonds if the warrants are detachable using the incremental method.
3. Prepare the journal entry to record the exercise of all detachable warrants on October 5, 2020, when the market price of the stock was $60, using the incremental method.