Question

On January 1,2023 , Sheridan Corp. issued $1.155 million of five-year, zero-interest-bearing notes along with warrants to buy 1.07 million common shares at $21 per share. On January 1,2023, Sheridan had 9.3 million common shares outstanding and the market price was $20 per share. Sheridan received $1.07 million for the notes and warrants. If offered alone, on January 1 , 2023, the notes would have been issued to yield 11% to the creditor. Assume that the company follows IFRS. Prepare the journal entry to record the issuance of the zero-interest-bearing notes and warrants for the cash consideration that was received.

Answer 1

The journal entry to record the issuance of zero-interest-bearing notes and warrants for cash consideration received is: Debit Cash, Debit Additional Paid-in Capital - Warrants, Credit Notes Payable, Credit Paid-in Capital - Warrants.

Step-by-step explanation:

To record the issuance of the zero-interest-bearing notes and warrants for the cash consideration received, the following journal entry should be made:

1. Debit: Cash - $1.07 million
2. Debit: Additional Paid-in Capital - Warrants - $44,100
3. Credit: Notes Payable - $1.07 million
4. Credit: Paid-in Capital - Warrants - $44,100

The first two entries represent the cash consideration received for the notes and the warrants, respectively. The third and fourth entries reflect the corresponding increase in liabilities (Notes Payable) and equity (Paid-in Capital - Warrants).