Question

Hoffman Corporation issued $60 million of 5%, 20-year bonds at 102. Each of the 60,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20, one share of $1 par common stock. At the time of sale, the market value of the common stock was $25 per share and the market value of each warrant was $5. Prepare the journal entry to record the issuance of the bonds. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the issuance of the bonds. Note: Enter debits before credits. Event General Journal Debit Credit

Answer 1

A stock warrant gives the buyer an option to acquire declared number of shares of equity at particular price and time both of which are specified while giving the option to buyer.

Date	Particulars	Debit ($ in million)	Credit ($ in million)
	Cash	61.2
	Discount on bonds payable	1.8
	Bonds payable		60.0
	Equity-stock warrants outstanding		3.0
	(To record issuance of bonds)

Computation of cash amount

Cash = Face value of bonds X 102% = 60,000,000 X 102/100 = $ 61.2 million

Equity- stock warrants outstanding = ($5 × 10 warrants × 60,000 bonds) = $3.0 million

Bonds payable = $ 60.00 million as given

Discount on bonds payable = (60+3-61.2) mn = $ 1.8 million (balancing figure)

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