Question

(Issuance of Bonds with Detachable Warrants) On September 1, 2014, Universal Coat Company

sold at 104 (plus accrued interest) 3,000 of its 8%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No market value can be determined for the Universal Coat Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred.

Instructions

Prepare in general journal format the entry to record the issuance of the bonds.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
01-09-14	Cash	$    3,150,000.00
	unamortized bonus issue costs	$          30,000.00
	To bonds payable		$    3,000,000.00
	To premium on bonds payable		$       102,000.00
	To stock warrants		$          18,000.00
	To bond interest expense		$          60,000.00
	(To record the issuance of bonds)
1	Bonds payable = $3000*1000	$    3,000,000.00
2	Premium on bonds payable :
	Sale price of bonds (3000*1000*1.04)	$    3,120,000.00
	Less : face value of bonds	$ (3,000,000.00)
	Overage	$       120,000.00
	Less : Value assigned to stock warrants (3000*2*$3)	$       (18,000.00)
	Premium on bonds payable	$       102,000.00
3	bonds interest expense = 3000*1000*8%*3/12	$          60,000.00
	(3 months = june,july,august)