Question

Teal Corp issued $2,000,000, twenty-year, 6 percent bonds for $2,180,000. Each $1,000 bond has one detachable warrant, each of which permits the purchase of one share of the corporation's common stock for $50. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values:

6% bond without warrants                                      0 .96

Warrants                                                                   $55

Paid in capital common stock                               $237,400

What accounts should Teal Corp credit to record the sale of the bonds?

Select one:

Bonds payable                                2,000,000
Paid in capital - stock warrants           260,000

Bonds payable                                2,000,000
Paid in capital - stock warrants           180,000

Bonds payable                                2,000,000
Premium on B/P                              72,079
Paid in capital - stock warrants           107,921

Bonds payable                              1,960,000
Premium on B/P                                40,000
Paid in capital - stock warrants           130,000

Bonds payable                                1,920,000
Premium on B/P                                  72,079

Paid in capital - stock warrants           187,921

Answer 1

The correct answer is:

Bonds payable                                2,000,000
Premium on B/P                              72,079
Paid in Capital - stock warrants           107,921

Account Titles and Explanation	Debit	Credit
Cash	$2,180,000
Bonds Payable		$2,000,000
Premium on Bonds (2,072,079 - 2,000,000)		$72,079
Paid in Capital - Stock Warrants		$107,921
Working			Lumpsum Receipts	Allocated
Bonds (2,000,000 x 0.96)	$1,920,000	1920/2020	$2,180,000	$2,072,079
Stock Warrants (2,000 x 1 x 50)	$100,000	100/2020	$2,180,000	$107,921
	$2,020,000			$2,180,000