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.
|Discount on Bonds Payable||3,951|
|Paid-in Capital—Stock Warrants||4,951|
|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|
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