Question

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the warrants without the bonds cannot be determined. Use the incremental method to record the issuance of the bonds and warrants.

Short answer

Cash and Discount on Bonds Payable will be debited with $2,020,000 and $40,000, respectively. Bonds Payable and Paid-in Capital- Stock Warrants will be credited with $2,000,000 and $60,000, respectively.

Step-by-step solution

The following details are provided

We have:

Discount on Bonds Payable $40,000 [$2,000,000 X (1 – .98)]

Paid-in Capital—Stock Warrants $60,000 [$2,000,000 X (1.01 – .98)]

Journal entry

Date	Description	DEBIT	CREDIT
	Cash	$2,020,000
	Discount on Bonds Payable	$40,000
	Bonds Payable		$2,000,000
	Paid-in Capital—Stock Warrants		$60,000