Question

On May 1, 2020, Riverbed Company issued 2,300 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, 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.)
(b) Assume the same facts as part (a), except that the warrants had a fair value of $24. 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.)

Answer 1

No.	Date	Account Titles and Explanations	Debit (in $)	Credit (in $)
(a)	May 1, 2020	Cash ( 2,300 bonds x $ 1,000 x 102% )	$ 2,346,000
		Discount on Bonds Payable ( 2,300 bonds x $ 1,000 x ( 1 - 98% ) )	$ 46,000
		Bonds Payable              ( 2,300 bonds x $ 1,000 )		$ 2,300,000
		Paid-in Capital - Stock Warrants   - Bal. Fig.		$ 92,000
		(To record the issuance of the bonds and warrants)
No.	Date	Account Titles and Explanations	Debit (in $)	Credit (in $)
(b)	May 1, 2020	Cash ( 2,300 bonds x $ 1,000 x 102% )	$ 2,346,000
		Discount on Bonds Payable   - Bal. Fig.	$ 10,080
		Bonds Payable              ( 2,300 bonds x $ 1,000 )		$ 2,300,000
		Paid-in Capital - Stock Warrants		$ 56,080
		(To record the issuance of the bonds and warrants)
		Workings:
		Fair maket value of bonds without warrants ( 2,300 bonds x $ 1,000 x 98% )	$ 2,254,000
		Fair value of warrants ( 2,300 bonds x $ 24)	$ 55,200
		Total Fair market value	$ 2,309,200
		Fair market value assigned to bonds ($ 2,346,000 / $ 2,309,200 ) x $ 2,254,000	$ 2,289,920
		Fair market value assigned to warrants ($ 2,346,000 / $ 2,309,200 ) x $ 55,200	$ 56,080