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Burnquist Corp. issued 4,000, $1,000 face value bonds at 102. Each bond was issued with two...

Burnquist 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

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Answer #1

Solution:

Journal Entry
Particulars Debit Credit
Cash Dr (4000*$1000*102%) $40,80,000
Discount on Bonds Payable Dr $1,20,000
      To Bonds payable (4000*$1000) $40,00,000
      To Paid in Capital- Stock warrants (as computed Note 1) $2,00,000

Note 1:

Computation of Cash Allocation to warrants
Market Value Of bond payable (4000*$1000*97%) $38,80,000
Market Value of Warrants (4000*2*$25) $2,00,000
Total Market Value $40,80,000
Cash Allocated to warrants [($4,080,000/$4,080,000)*$200,000] $2,00,000
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