Question

Pina Inc. has decided to raise additional capital by issuing $168,000 face value of bonds with a coupon rate of 9%. 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 $154,800, and the value of the warrants in the market is $17,200. The bonds sold in the market at issuance for $154,000.

(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 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 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 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation	Debit	Credit

Answer 1

Journal entries
Particulars				Debit	Credit
a)
cash				154000
discount on bonds payable				29400
bonds payable					168000
paid in capital-stock warrants					15400
b)
Cash				154000
discount on bonds payable				14000
bonds payable					168000
paid in capital-stock warrants = 154000/(154800+17200)*17200 =15400