In: Accounting
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
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) |