Question

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 1

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