On September 1, 2020, Crane Corp. sold at 105 (plus accrued interest) 5,500 of its $1,000 face value, 10–year, 10% non–convertible bonds with detachable stock warrants. Each bond carried 2 detachable warrants; each warrant was for one common share at a specified option price of $12 per share. Shortly after issuance, the warrants were selling for $6 each. Assume that no fair value is available for the bonds. Interest is payable on December 1 and June 1. Crane Corp. prepares its financial statements in accordance with ASPE.
Prepare in general journal format the entry to record the issuance of the bonds under both options available under ASPE.
Date |
Account Titles and Explanation |
Debit |
Credit |
Residual method: | |||
September 1, 2020 |
|||
(To record the issuance of the bonds) | |||
Allocation of zero to equity: | |||
(To record the issuance of the bonds) |
Date | Account Titles and Explanation | Debit | Credit |
Sep 1, 2020 | Cash | 5,912,500 | |
Bonds Payable | 5,709,000 | ||
Contributed Surplus - Stock Warrants | 66,000 | ||
Interest Payable (FV x std rate x time = $5,500,000 x 10% x 3/12 months) | 137,500 | ||
Working | |||
Lump Sum Receipt (5,500 Bonds x $1,000 face value x 105/100) | $5,775,000 | ||
Less: Amount allocated to warrants (5,500 Bonds x 2 warrants x $6/warrant) | $66,000 | ||
Balance allocated to bonds | $5,709,000 | ||
Date | Account Titles and Explanation | Debit | Credit |
Sep 1, 2020 | Cash | 5,912,500 | |
Bonds Payable | 5,775,000 | ||
Interest Payable | 137,500 | ||
On September 1, 2020, Crane Corp. sold at 105 (plus accrued interest) 5,500 of its $1,000...
On September 1, 2020, Crane Corp. sold at 105 (plus accrued interest) 5,500 of its $1,000 face value, 10–year, 10% non–convertible bonds with detachable stock warrants. Each bond carried 2 detachable warrants; each warrant was for one common share at a specified option price of $12 per share. Shortly after issuance, the warrants were selling for $6 each. Assume that no fair value is available for the bonds. Interest is payable on December 1 and June 1. Crane Corp. prepares...
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