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Eisler Corporation issued 2,000 \(1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of \)40. Use the proportional method to record the issuance of the bonds and warrants.

Short Answer

Expert verified

Cash and discount on bonds payable are to be debited with $2,020,000 and $59,216, respectively. Bonds payable and paid-in Capital- Stock warrants will be credited with $2,000,000 and $79,216, respectively.

Step by step solution

01

The information given in the question are as follows:

Bonds Payable$2,000,000

Discount on Bonds Payable $59,216 ($2,000,000 – $1,940,784)

Fair value of bonds$1,960,000(2,000 X $1,000 X 98)

Fair value of warrants$80,000(2,000 X $40)

Allocated to bonds$1,940,784[($1,960/$2,040) X $2,020,000]

Allocated to warrants$79,216 [($80/$2,040) X $2,020,000]

02

Recording the issuance of the bonds and warrants

Date

Transaction

Debit

Credit

Cash

$2,020,000

Discount on Bonds Payable

$59,216

Bonds Payable

$2,000,000

Paid-in Capital—Stock Warrants

$79,216

Being bonds are issued at discount

Fair value of bonds

$1,960,000

Fair value of warrants

$80,000

Aggregate fair value

$2,040,000

Allocated to bonds

$1,940,784

Allocated to warrants

$79,216

$2,020,000

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Most popular questions from this chapter

(EPS with Stock Dividend and Discontinued Operations) Christina Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Christina employs a fiscal year ending May 31.

Income from operations before income taxes for Christina was \(1,400,000 and \)660,000, respectively, for fiscal years ended May 31, 2018 and 2017. Christina experienced a loss from discontinued operations of \(400,000 on March 3, 2018. A 40% combined income tax rate pertains to any and all of Christina Corporation’s profits, gains, and losses.

Christina’s capital structure consists of preferred stock and common stock. The company has not issued any convertible securities or warrants and there are no outstanding stock options.

Christina issued 40,000 shares of \)100 par value, 6% cumulative preferred stock in 2014. All of this stock is outstanding, and no preferred dividends are in arrears.

There were 1,000,000 shares of \(1 par common stock outstanding on June 1, 2016. On September 1, 2016, Christina sold an additional 400,000 shares of the common stock at \)17 per share. Christina distributed a 20% stock dividend on the common shares outstanding on December 1, 2017. These were the only common stock transactions during the past 2 fiscal years.

Instructions

(a) Determine the weighted-average number of common shares that would be used in computing earnings per share on the current comparative income statement for:

(1) The year ended May 31, 2017.

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(1) Explain why Christina Corporation is considered to have a simple capital structure.

(2) Describe how earnings per share data would be presented for a corporation that has a complex capital structure.

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