Question

Bridgeport Inc. has decided to raise additional capital by issuing $167,000 face value of bonds with a coupon rate of 10%. 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 $118,400, and the value of the warrants in the market is $29,600. The bonds sold in the market at issuance for $139,500. (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 decimal places, eg. 5,125.) Account Titles and Explanation Debit Credit

Answer 1

A):- Solutions

Basic calculations

Value assigned to bonds = {Value of bonds without warrants / (Value of bonds without warrant + value of warrant)} X Issued price

={$118400 / ($118400 + $29600)} X $139500

=$111600

Value assigned to warrants= {Value of warrants /(Value of bonds without warrant + Value of warrants)} X issued price

={$29600 / ($118400 + $29600)} X $139500

=$27900

Journal entries

Accounts tittle and explanations	Debit $	Credit$
Cash	139,500
Discount on bond payables ($167000 Face value - $111600 Assigned value)	55,400
Bond payables		167,000
Additional paid in capital -Stock warrants		27,900