Question

Shamrock Inc. has decided to raise additional capital by issuing $171,000 face value of bonds with a coupon rate of 11%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $115,200, and the value of the warrants in the market is $28,800. The bonds sold in the market at issuance for $140,000.

(a) What entry should be made at the time of the issuance of the bonds and warrants?

(b1) Prepare the entry if the warrants were nondetachable.

Answer 1

Answer:

	Accounts titles and Explanation	Debit ($)	Credit ($)
1)	Cash	1,40,000
	Discount on Bonds payable(171000-112000)	59,000
	Bonds Payable		1,71,000
	Paid-in Capital-Stock Warrants(140000/(115200+28800)*28800)		28,000
Value assigned to bond=112,000		=140000/(115200+28800)*115200
2b)entry if the warrants were nondetachable
	Accounts titles and Explanation	Debit ($)	Credit ($)
	Cash	1,40,000
	Discount on Bonds payable(171000-140000)	31,000
	Bonds Payable		1,71,000