Question

Concord Inc. has decided to raise additional capital by issuing $189,000 face value of bonds with a coupon rate of 9%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $131,750, and the value of the warrants in the market is $23,250. The bonds sold in the market at issuance for $152,500.

(a) What entry should be made at the time of the issuance of the bonds and warrants?

(b1) Prepare the entry if the warrants were nondetachable

Answer 1

a.

Accounts	Debit	Credit
Cash	152500
Discount on Bonds Payable	59375
Bonds Payable		189000
Paid-in Capital - Stock Warrants (152500/155000)*23250)		22875
b.
Accounts	Debit	Credit
Cash	152500
Discount on Bonds Payable	27500
Bonds Payable		189000

Working: Total market value = Market value of Bonds + Market value of Warrants

= $131,750 + $23,250

= $155,000