On January 1, 2017, United Corporation issued $10 million of 8% bonds at 105 (coupon payments are to be made annually at the end of the year). The bonds mature in 10 years. Each $1,000 bond was issued with 20 detachable stock warrants, each of which entitled the bondholder to purchase, for $50, one share of United common stock. On January 1, 2017, the market value per share for United stock was $48.00 and the market value of each warrant was $5.50.
Scenario 2
On January 1, 2017, assume that straight debt without detachable warrants with similar risk characteristics as the bonds are trading at 97% of face value. Provide the journal entry to record interest expense as of December 31, 2017.