Buffalo Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 99, and the warrants had a market price of $38. Use the proportional method to record the issuance of the bonds and warrants.

Were selling in the market at 97

Market Price = 33

In the books of Buffalo Corporation:

Transaction Account Titles Debit Credit

$ $

1 Cash (2,000 x 1,000 x 101 %) 2,020,000

Discount on Bonds Payable 46,461

Bonds Payable 2,000,000

Paid-in Capital : Stock Warrants 66,461

Bond issue proceeds proportionately allocated to bonds: $ 2,020,000 x 970 / (970 + 33) = $ 1,953,539.

Discount on bonds payable = $ 2,000,000 - $ 1,953,539 = $ 46,461