Illiad Inc. has decided to raise additional capital by issuing $183,100 face val
ID: 341206 • Letter: I
Question
Illiad Inc. has decided to raise additional capital by issuing $183,100 face value of bonds with a coupon rate of 12%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $129,440, and the value of the warrants in the market is $32,360. The bonds sold in the market at issuance for $146,000.
(a) What entry should be made at the time of the issuance of the bonds and warrants?
Explanation / Answer
Value assigned to bonds= value of bonds without warrants/ (value of bonds without warrants + value of warrants) * issue price
= 129440 / (129440 + 23360) * 146000
= 123680
Value assigned to warrants = value of warrants / (value of bonds without warrants+value of warrants ) * issue price
= 23360 / ( 129440 + 23360 ) * 146000
= 22320
Accounting title and explanation Debit credit Cash 146,000 Discount on bond Payable ( 183100 - 123680) 59420 Bond payable 183100 Paid in capital - Stock Warrants 22320