Question

On July 1, 2016, Salem Corporation issued $3.3 million of 8% bonds payable in 10 years. The bonds pay interest semiannually. The bonds include detachable warrants giving the bondholder the right to purchase for $33, one share of $1 par value common stock at any time during the next 10 years. Salem sold the bonds for $3.3 million. The value of the warrants at the time of issuance was $132,000.

Required:

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

CHART OF ACCOUNTS
Salem Corporation
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 225 Common Stock Warrants 231 Salaries Payable 250 Unearned Revenue 255 Bonds Payable 257 Discount on Bonds Payable 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare in general journal format the entry to record the issuance of the bonds on July 1.

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4

Answer 1

Out of $3300000 value of bond, value of warrants at the time of issue was $132000. Thus, we can allocate value of share warrant out of $3300000 as $132000 and value of bonds aa $3300000-$132000 = $3168000

Journal entry for recording issuance of bonds will be as follows :-

S no	date	account title	post ref	debit	credit
1.	July 1	cash Bonds payable Common stock warrants (To bonds issued alongwith warrant )		3300000	3168000 132000