Question

Salt Company issued 6,400 of its​ $1,000 par value bonds for $1,460​, providing total cash proceeds of $ 9,344,000. The market price of Salt's common shares on the date it issued the bonds is $ 23 per share. It sold the bonds with 352,000 detachable warrants to acquire 352,000 shares of the​ company's $ 2 par value common stock for $ 23 per share. That​ is, each bond carries 55 warrants x 6,400 bonds​ = 352,000 shares. Salt has existing bonds outstanding that trade without warrants at $ 1,260. There are other Salt Company warrants outstanding that trade for $ 23 each. Prepare the journal entry to record the issuance of the bonds assuming that the proportional method is used. (Record debits​ first, then credits. Exclude explanations from any journal entries. Round any intermediary calculations to the nearest hundredth of a​percent, X.XX%. Round the amount you enter into the input cell to the nearest whole​ dollar.)

Account	Date of Issue
Cash	9,344,000
Discount on Bonds Payable
Additional Paid-in Capital—Stock Warrants
Bonds Payable		6,400,000

Answer 1

Bond value without warrants = number of bonds* price without warrants

                 = 6400*1260

                 = 8064000

warrants value= 352000*23 = 8096000

Total value = 8064000+8096000 = 16160000

cash proceeds from bonds= cash received * bond value without warrant / toal value

    = 9344000*8064000/16160000

   = 4662749

Discount on bond payable = 6400000-4662749 = 1737251

2)cash received from warrants = 9344000*8096000/16160000

                         = 4681251

Account	Debit	credit
cash	9344000
Discount on Bonds Payable	1737251
Additional Paid-in Capital—Stock Warrants		4681251
Bond payable		6400000