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(Issuance of Bonds with Warrants) Illiad Inc. has decided to raise additional capital by issuing 170,000facevalueofbondswithacouponrateof10100 bond sold. The value of the bonds without the warrants is considered to be 136,000,andthevalueofthewarrantsinthemarketis24,000. The bonds sold in the market at issuance for $152,000.

Instructions

(a) What entry should be made at the time of the issuance of the bonds and warrants?

(b) If the warrants were nondetachable, would the entries be different? Discuss.

Short Answer

Expert verified
  1. Cash debited by $152,000, discount on bonds payable debited by $40,800, bond payable credited by $170,000 and paid-in capital stock warrants credited by $22,800.
  2. Cash debited by $152,000, discount on bond payable debited by $18,000 and bond payable credited by $170,000.

The paid-in capital of the stock warrants is $22,800.

Step by step solution

01

Entry for the issue on the bonds

Date

Particulars

Debit

Credit

Cash

$152,000

Discount on Bonds Payable

$40,800

Bonds Payable

$170,000

Paid-in Capital Stock Warrants

$22,800

(Being entry is made for the issuance of the bonds and warrants)

Paid-in capital of stock warrants:

Paid-inCapital=SalesValuesofbonds(Valueofbonds+ValueofWarrants)ร—valueofwarrants=$152,000$136,000+$24,000ร—$24,000=$22,800

02

Entry if bonds are nondetachable

Date

Particulars

Debit

Credit

Cash

$152,000

Discount on Bonds Payable

$18,000

Bonds Payable

$170,000

(being entry if warrants are nondetachable)

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Most popular questions from this chapter

What are stock rights? How does the issuing company account for them?

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