Question

Anteater Company issued 100 bonds, each with a face amount of $1,000, with nondetachable stock warrants at 101. Each warrant entitled its holder to acquire one share of $100 par common stock for $120 per share. Through discussion with investment bankers, it is determined that the bonds would sell for 97 without the warrants. The market value of each warrant is $50.

1.Record the journal entry for the issuance of the bonds.

Answer 1

General Journal	Debit	Credit
Cash	101,000
Discount on Bonds Payable	3,951
Bonds Payable		100,000
Paid-in Capital—Stock Warrants		4,951
Working
Total proceeds = $100,000 x 1.01 = $101,000
Market value of warrants = 100 warrants x $50 = $5,000
Market value of bonds w/o warrants = $100,000 x .97 = $97,000 Proceeds
Allocated to warrants:
$5,000 x $101,000/$102,000	$4,951
Proceeds allocated to bonds:	$96,049
$97,000 x $101,000/$102,000