Question

On May 1, 2017, Bramble Company issued 1,400 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 97, but the fair value of the warrants cannot be determined.

(a) Prepare the entry to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(b) Assume the same facts as part (a), except that the warrants had a fair value of $37. Prepare the entry to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation	Debit	Credit

Answer 1

a
Account Titles and Explanation	Debit	Credit
Cash	1428000		=1400*1000*1.02
Discount on Bonds Payable	42000		=1400*1000*(1-0.97)
Bonds Payable		1400000	=1400*1000
Paid-in Capital - Stock Warrants		70000
b
Account Titles and Explanation	Debit	Credit
Cash	1428000
Discount on Bonds Payable	24469
Bonds Payable		1400000
Paid-in Capital - Stock Warrants		52469

Workings:

Market value of Bonds	1358000		=1400*1000*0.97
Market value of Warrants	51800		=1400*37
Total Market value	1409800
Value allocated to Bonds	1375531		=1428000*1358000/1409800
Value allocated to Warrants	52469		=1428000*51800/1409800