Please answer part B. p, on May 31, 2017, core company issued 1,000, 14%, 10-yea
ID: 2330533 • Letter: P
Question
Please answer part B.
p, on May 31, 2017, core company issued 1,000, 14%, 10-year $1,000 bonds at 105, Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 102, but the market value of the warrants cannot be determined. (a) Prepare the entry to record the issuance of the bonds and warrants. (b) Assume the same facts as part (a), except that the warrants had a fair value of $8. Prepare the entry to record the issuance of the bonds and warrants.Explanation / Answer
B Part
Account Titles and Explaination Debit Credit Cash $ 10,50,000 Bonds payable (1,000 X $1,000) $ 10,00,000 Premium on bonds payable ( $10,41,829 - $10,00,000) $ 41,829 Paid - Capital - Warrants $ 8,171 (Being issuance of bonds and warrants recorded) Workings: Market value of bonds without warrants [(1,000 X $1,000) X 1.02] = $ 10,20,000 Market value of warrants (1,000 X $8) = $ 8,000 Total Market Value = $ 10,28,000 Total value [(1,000 X $1,000) X 1.05] = $ 10,50,000 Value assigned to: Bonds Value [$10,50,000 X ($10,20,000/$10,28,000)] = $ 10,41,829 Warrants Vale [$10,50,000 X ($8,000/$10,28,000)] = $ 8,171