Question

Headland Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock...

Headland Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $40. Use the proportional method to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Homework Answers

Answer #1
Issue price 2020000 =2000*1000*1.01
Market value of bonds 1960000 =2000*1000*0.98
Market value of warrants 80000 =2000*40
Total 2040000
Allocation to bonds 1940784 =2020000/2040000*1960000
Allocation to warrants 79216 =2020000/2040000*80000
Journal entry:
Cash 2020000
Discount on Bonds Payable 59216
      Bonds Payable 2000000
      Paid-in Capital - Stock Warrants 79216
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