Question

On May 1, 2020, Judice Company issued 400 $1,000 bonds at 104. Each bond was issued with two detachable stock warrants. Shortly after issuance, the bonds were selling at 106, and the fair value of the warrants was $40 each. Show supporting computation. No need to show questions. Prepare the entry to record the issuance of the bonds and warrants.

Answer 1

General Journal Cash Discount on bonds payable Bonds payable Paid in capital - Share warrants Debit $416,000 $13,193 Credit ($400000 x 104%] $400,000 [400 x $1000] $29,193 Workings: Number of bonds issued Par value per bond issued Par value of the bonds issued Market rate of the bonds Market value of the bonds issued 400 $1,000 $400,000 [400 x $1000] 106% $424,000 ($400000 x 106%] Par value of the bonds issued Bond's initial issue rate Bonds' initial issue price $400,000 [400 x $1000] 104% $416,000 ($400000 x 104%] Therefore, 400 Number of bonds issued # of detachable warrant per bond Total detachable warrants issued Fair value per detachable warrant Fair value of detachable warrants Value assigned to bonds Par value of the bonds issued Discount on bonds payable $386,807 [$416000 x $424000 / ($424000 + $32000)] $400,000 [400 x $1000] $13,193 [$400000 - $386807] 800 [400 x 2] $40 $32,000 [800 x $40] Value assigned to share warrants $29,193 [$416000 x $32000 / ($424000 + $32000)]