Question

Tony Corp. issued 4,000, $1,000 face value bonds at 102. Each bond was issued with two detachable stock warrants. After issuance the bonds were selling in the market at 97 and the warrants had a fair market value of $25. Prepare the journal entry for the issuance of these securities and please show all work.

Answer 1

Account	Debit	Credit
Cash	$4,080,000		(4,000 x $1,000 x 102/100)
Discount on Bonds Payable	$120,000		($4,000,000 - $3,880,000)
Bonds Payable		$4,000,000	(4,000 x $1000)
Paid-in Capital—Stock Warrants		$200,000
Working
Fair value of bonds	$3,880,000
(4,000 x $1,000 x 97/100)
Fair Value of Warrant	$200,000
(4,000 x 2 x $25)
	$4,080,000
Allocation to Bonds	$3,880,000
($4,080,000 x 3,880,000/$4,080,000)
Allocation to Warrant	$200,000
($4,080,000 x $200,000/$4,080,000)