Question

On September 1, 2017, Concord Company sold at 104 (plus accrued interest) 5,640 of its 10%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No fair value can be determined for the Concord Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $28,600 were incurred. Prepare in general journal format the entry to record the issuance of the bonds.

Answer 1

Date	General Journal	Debit	Credit
Sep.1, 2017	Cash (bal.fig.)	5978000
	Unamortized bonds issue costs	28600
	Bonds payable [5640*1.04*1000]		5640000
	Premium on bonds payable		191760
	Bond Interest Expense		141000
	Stock Warrant		33840

Workings:

Sale price of the bonds [[5640*1.04*1000]]	5865600
Less: Face value of the bonds	5640000
Premium on bonds	225600
Less: warrants expense [5640*2*3]	33840
Net Premium	191760

Interest expense = 5640000* 10% * 3/12 = 141,000