Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5)...

Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 800, $1,000 bonds with the warrants attached was $820,000. The market price of the Vernon bonds without the warrants was $720,000, and the market price of the warrants without the bonds was $80,000. prepare journal entry. please give step by step

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Expert Solution

Value Assigned to Bonds = (Value of Bonds without warrants / (Value of Bonds without warrants + Value of Warrants) X Issue Price
Value Assigned to Bonds = ($720,000 / (720,000 + $80,000)) X $820,000
Value Assigned to Bonds = $738,000

Value Assigned to Warrants = (Value of warrants / (Value of Bonds without warrants + Value of Warrants) X Issue Price
Value Assigned to Warrants = ($80,000 / (720,000 + $80,000)) X $820,000
Value Assigned to Warrants = $82,000

Journal Entry
Date	Particulars	Dr. Amt	Cr. Amt.

1	Cash	820,000.00
	Discount on Issue of Bonds	62,000.00		$800,000 - $738,000
	Bonds Payable		800,000.00
	Paid-In Capital - Stock Warrants		82,000.00
	(record the issue of Bonds with warrants)

ekkarill92 answered 1 year ago

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