Question

In: Accounting

On May 1, 2017, Concord Company issued 1,700 $1,000 bonds at 102. Each bond was issued...

On May 1, 2017, Concord Company issued 1,700 $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.

(b) Assume the same facts as part (a), except that the warrants had a fair value of $23. Prepare the entry to record the issuance of the bonds and warrants.

Solutions

Expert Solution

Answer

a

Account Title Debit Credit
Cash $      1,734,000 1700*1000*1.02
Discount on Bonds Payable $           51,000 1700*1000*(1-0.97)
          Bonds Payable $      1,700,000 1700*1000
         Paid-in Capital—Stock Warrants $           85,000
b
Debit Credit
Cash $      1,734,000 1700*1000*1.02
Discount on Bonds Payable $           22,701
          Bonds Payable $      1,700,000
         Paid-in Capital—Stock Warrants $           56,701
Workings:
Market value of bonds without warrants $      1,649,000 1700*1000*0.97
Market value of warrants $           39,100 1700*23
Total market value $      1,688,100
Value assigned bonds $      2,391,299 2448000/1688100*1649000
Value assigned to warrants $           56,701 2448000/1688100*39100

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