In: Accounting
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.
Answer | |||
a |
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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 |