Question

In: Accounting

On April 1, 2020, Sydney Company issued 300 $1,000 bonds at 98. Each bond was issued...

On April 1, 2020, Sydney Company issued 300 $1,000 bonds at 98. Each bond was issued with two detachable stock warrants. Shortly after issuance, the bonds were selling at 96, and the warrants were selling for $50 each.

Instructions:

Prepare the entry to record the issuance of the bonds and warrant

2.

The Cinci Company issues $100,000, 10% bonds at 103 on April 1, 2020. The bonds are dated January 1, 2020 and mature six years from that date. Straight-line amortization is used. Interest is paid annually each December 31. Compute the bond carrying value as of December 31, 2023.

Answer

$_______________

Expert Solution

Question 1

Computation of Fair Value Proportions:

Total Fair Value of bond = 96 + (2 X 50) = 196

Proportion for Bond part = 96/196

Proportion for warrant part = 50/196

Appropriation of proceeds:

Total Proceeds = 300 X $1000 X 98 = $ 29,400,000

Bond part = $29,400,000 x 96/196 = $ 14,400,000

Warrant Part = $29,400,000 x 50/196 = $ 7,500,000

Journal Entry: Dr Cr

Bank $ 29,400,000

Bonds payable A/c $ 14,400,000

Warrants A/c $ 7,500,000

Question 2

No of month for amortization = 6 X 12 = 72

Month from April 1,2020 to December 31,2023 = 3 X 12 + 9 = 45

Bond issue price = 100,000 X 1.03 = 103,000

Premium on bonds payable = 103,000 - 100,000 = $ 3,000

Amortized premium = 3,000 X 45 / 72 = $ 1,875

Unamortized premium = 3,000 - 1,875 = $ 1,125

Carrying value on December 31,2023 = 100,000 + 1,125 = $ 101,125

ekkarill92 answered 1 year ago

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