Question

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

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

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]

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