Question

Brief Exercise 16-5

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the warrants without the bonds cannot be determined.

Use the incremental method 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 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Answer 1

Answer :- Using the incremental method to record the issuance of the bonds and warrants:-

Cash a/c Dr $2,020,000

Discount on bonds Payable a/c Dr $40,000

To   Bonds Payable A/c $2,000,000

To Paid-in capital stock warrants A/c $60,000

Working :-

Cash = 2,000 *$1,000 *101% = $2,020,000

Discount on bonds payable = $2,000,000 *2% = 40,000

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