Question

Brief Exercise 16-04 Sunland Corporation issued 1,900 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $43. Use the proportional 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 o for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to o decimal places, e.g. 5,125.) Account Titles and Explanation Debit Credit

Answer 1

Solution:

Account Titles and Explanation	Debit	Credit
Cash	$              1,919,000
Discount on Bonds Payable	$                    61,662
Bonds Payable		$        1,900,000
Paid-In-Capital-Stock Warrants		$              80,662
(To record bond and warrant issue)

Working:

	Market Price	Percent%
Bonds	$           1,862,000	96%
Warrants	$                 81,700	4%
Toal Fair Market Value	$           1,943,700	100%
Allocation:	Bonds	Warrants
Issue Price [1900*1000*1.01]	$           1,919,000	$                  1,919,000
Allocation %	96%	4%
Total	$           1,838,338	$                        80,662
Bond Face Value	$           1,900,000
Allocated Value	$         (1,838,338)
Discount	$                 61,662