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13 September, 09:04

On May 1, 2020, Flint Company issued 1,500 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the fair value of the warrants cannot be determined.

a. Prepare the entry to record the issuance of the bonds and warrants

b. Assune the same facts as part (a), except that the warrants had a fair value of $30. Prepare the entry to record the issuance of the bonds and warrants.

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  1. 13 September, 11:26
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    a. Prepare the entry to record the issuance of the bonds and warrants

    Cash received on issuance of 1,500 $1,000 bonds at 102 = $1,500,000

    Account Title Debit Credit

    Cash ($1,500,000 X 1.02) 1,530,000

    Discount on Bonds Payable 30,000

    [ (1 -.98) X $1,500,000]

    Bonds Payable 1,500,000

    Paid-in Capital-Stock Warrants 60,000

    [$1,530,000 - ($1,500,000 X. 98)

    b. Assume the same facts as part (a), except that the warrants had a fair value of $30. Prepare the entry to record the issuance of the bonds and warrants.

    Market value of bonds without warrants $1,470,000

    ($1,500,000 X. 98)

    Market value of warrants (1,500 X $30) 45,000

    Total market value $1,515,000

    Value assigned to bonds = 1,470,000/1,515,000 x $1,530,000 = $1,484,554

    Value assigned to warrants = 45,000/1,515,000 X $1,530,000 = 45,446

    Account Title Debit Credit

    Cash 1,530,000

    Discount on Bonds Payable

    ($1,500,000 - $1,484,554) 15,446

    Bonds Payable 1,500,000

    Paid-in Capital-Stock Warrants 45,446
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