Question

* Question 8 Riverbed Inc. has decided to raise additional capital by issuing $177,000 face value of bonds with a coupon rate of 11% 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 $123,200, and the value of the warrants in the market is $30,800. The bonds sold in the market at issuance for $141,500 (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 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 (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 decial places, e.g. 1.24687 and final answers to o decimal places, e.g. S,125.) Account Titles and Explanation Debit Credit Question Attempts: 0 of 5 used

Answer 1

Calculation of value assigned to bonds:
Value Assigned to bonds	[(Value of Bonds without warrants/Value of bonds without warrants+Value of warrants)]*Issue price
Value Assigned to bonds	[123200/(123200+30800)]*141500
Value Assigned to bonds	113200
Calculation of value assigned to Warrants:
Value Assigned to warrants	[(Value of warrants/Value of bonds without warrants+Value of warrants)]*Issue price
Value Assigned to warrants	[30800/(123200+30800)]*141500
Value Assigned to warrants	28300

Journal entires ( 1)
Cash	141500
Discount on Bonds Payable (177000-113200)	63800
Bonds payable		177000
Paid in capital - stock warrants		28300
Journal entires ( 2)
Cash	141500
Discount on Bonds Payable (177000-141500)	35500
Bonds payable		177000