Question

Exercise 16-9 On May 1, 2017, Marigold Company issued 2,300 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 99, but the fair value of the warrants cannot be determined. (a) Prepare the entry to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit (b) Assume the same facts as part (a), except that the warrants had a fair value of $28. Prepare the entry to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to o decimal places, e.g. 5,125.) Account Titles and Explanation Debit Credit

Answer 1

journal entries:

	account title	debit	credit
a	cash (2300 x $1000 x 1.02) discount on bonds payable (2300 x $1000 x 1%) bonds payable (2300 x $1000) paid in capital - stock warrants	$2346000 $23000 . .	. . $2300000 $69000
b	cash discount on bonds payable bonds payable paid in capital - stock warrants	$2346000 $18527 . .	. . $2300000 $64527

market value of bonds without warrant = 2300 x $1000 x 99% = $2277000

market value of bonds with warrant = 2300 x $28 = $64400

total market value = $2341400

value assigned to bonds = $2277000 x ($2346000/$2341400) = $2281473.47741

discount on bonds payable = ($2300 x $1000) - $2281473.47741 = $18527