Question

Short Problems - Respond to 4 of the following 5 problems (8 points each) 1. Lauren, Inc. issues $7,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $6,850,000 and the value of the warrants is $425,000. The bonds with the warrants sold at $7,150,000. Required: Prepare the journal entry Lauren, Inc. should make to record the bonds.

Answer 1

Journal Entry
Particulars		DR	CR
CashA/c		$    7,150,000.00
Discount/Premium on Bond		$        267,697.59
To Additional Paid in capital(Warrants)			$      417,697.59
To 8% Debt			$ 7,000,000.00
Total…	$    7,417,697.59	$ 7,417,697.59
Working Note:
	Amount	Ratio
MV of Bond	6850000	94%
MV of Warrant	425000	6%
Total	7275000
Warrant Amount should be
=7150000*6%
$                                                        417,697.59