Question

Coronado Inc. has decided to raise additional capital by issuing $168,000 face value of bonds with a coupon rate of 9%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $138,550, and the value of the warrants in the market is $24.450. The bonds sold in the market at issuance for $161,000. (a) What entry should be made at the time of 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. Round intermediate calculations to 5 decimal places, eg. 1.24687 and final answers to 0 decimal places, e.g. 5.125.) Account Titles and Explanation Debit Credit (b1) Prepare the entry if the warrants were nondetachable. (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 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.) Account Titles and Explanation Debit Credit

Answer 1

Issue Price = Value assigned to Bonds Value of Bonds without Warrants Value of Bonds without Warrants + Value of Warrants 138550 * 161000 = 136,850 138550+24450 Issue Price = Value assigned to Warrants Value of Warrants Value of Bonds without Warrants + Value of Warrants 24450 * 161000 = 24,150 138550+24450 Credit Account title & explanation Cash Discount on Bonds Payable (168000-136850) Bonds Payable Paid In Capital - Stock Warrants Debit 161,000 31,150 168,000 24,150 55 b) Credit Account title & explanation Cash Discount on Bonds Payable (168000-136850) Bonds Payable Debit 161,000 7,000 168,000 59