Question

Issuance of Bonds with Detachable Warrants) On September 1, 2014, Universal Coat Company

sold at 104 (plus accrued interest) 3,000 of its 8%, 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 market value can be determined for the Universal Coat Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred.

Instructions

Prepare in general journal format the entry to record the issuance of the bonds.

Answer 1

Answer :

Date	Account title and explanation	Debit	Credit
01.09.14	Cash	$3,150,000.00
	Unamortized bonus issue costs	$30,000.00
	To Bonds payable		$3,000,000.00
	To Premium on bonds payable		$102,000.00
	To Stock warrants		$18,000.00
	To Bonds interest expense		$60,000.00
	(To record the issuance of bonds)
1	Bonds payable = $3000*1000	$3,000,000.00
2	Premium on bonds payable
	Sale price of bonds (3000*1000*1.04)	$3,120,000.00
	Less : Face value of bonds	$(3,000,000.00)
	Overage	$120,000.00
	Less : Value assigned to stock warrants (3000*2*$3)	$(18,000.00)
	Premium bonds payable	$102,000.00
3	Bonds interest expense = 3000*1000*8%*3/12	$60,000.00
	(3 months = June, July, August)