Illiad Inc. has decided to raise additional capital by issuing $183,100 face val
ID: 341704 • 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? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
(b) Prepare the entry if the warrants were nondetachable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Account Titles and Explanation
Debit
Credit
Explanation / Answer
a Cash 146000 Discount on bonds payable 66300 Bonds payable 183100 Paid in capital-Stock Warrants 29200 =146000/(129440+32360)*32360 b Cash 146000 Discount on bonds payable 37100 Bonds payable 183100