Question

Margolf Corp. issued 2,000, $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market value of $40. Use the proportional method to record the issuance of the bonds and warrants

PLEASE SHOW YOUR WORK

Answer 1

ANSWER:

In the books Margolf Corporation :

Transaction	Account Titles	Debit	Credit
		$	$
1	Cash ( 2,000 x 1,000 x 101 %)	2,020,000
	Discount on Bonds Payable	59,216
	Bonds Payable		2,000,000
	Paid-in Capital : Stock Warrants		79,216

Bond issue proceeds proportionately allocated to bonds: $ 2,020,000 x 980 / (980 + 40)

= $ 1,940,784.

Bond issue proceeds proportionately allocated to bonds = $ 1,940,784.

Discount on bonds payable = $ 2,000,000 - $ 1,940,784

= $ 59,216

Discount on bonds payable = $ 59,216

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