On January 1st 2017 the Bilbo Company issued (sold) $100,000 of 8% semi-annual 1
ID: 2560466 • Letter: O
Question
On January 1st 2017 the Bilbo Company issued (sold) $100,000 of 8% semi-annual 10 year bonds for S 124,000. Each of these 100 bonds came with 4 detachable warrants. Each warrant allowed the holder the right to purchase 10 shares of Bilbo ($5 par) common stock at $45 per share. At the time the bonds were issued each warrant was determined to be worth $100 each set. a) make the journal entry Bilbo makes on January 1st when it sells the bonds with the detachable warrants. b) Since the difference is not material, Bilbo has elected to use the straight-line method to amortize the interest on their bonds make the journal entry Bilbo makes on July 1st 2017 when they make the first interst payment c) On October 1st, all of the warrants are redeemed and Bilbo issues the stock connected with the warrants make the journal entry Bilbo makes when it issues the stock d) Make the adjusting entry Bilbo needs on December 31st 2017 (remember the interst isn't paid until January 1st) e) make the entry Bibo makes on January 1st when it makes the second interst payment )On January 2nd Bilbo retires all of the bonds by paying $100,000. Make the necessary entry for Bilbo at the retirement of the bonds.Explanation / Answer
Solution:
Journal Entries in the Books of Bilbo
= $ 180000
Par Value of Shares = $5 x 4000 shares = $ 20000
Date Particulars Debit Credit 01-01-2017 Bank 124000 Discount on bonds payable 16000 Bonds payable 100000 Additional paid-in capital–warrants 40000 (Being bonds Issued at discount of $16000, Refer Note 1 for details) 01-07-2017 Interest Expense 4000 Bank 4000 (being Interest paid) 01-10-2017 Bank 180000 Additional paid-in capital—warrants 40000 Common stock—par value 20000 Common stock—additional paid-in capital 200000 (Being warrant converted into stock, Refer Note 3) 31-12-2017 Interest Expense 4000 Interest Accrued but not Due 4000 (Being Interest Expense recognised) 01-01-2018 Interest Accrued but not Due 4000 Bank 4000 (Being Interest paid on Due date) 02-01-2018 Bonds payable 100000 Bank 100000 (Being Bonds retired)