Question

Exercise 16-7 Shamrock Inc. has decided to raise additional capital by issuing $167,000 face value of bonds with a coupon rate of 10%. 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 $118,400, and the value of the warrants in the market is $29,600. The bonds sold in the market at issuance for $139,500. (a) What entry should be made at the time of 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.) Account Titles and Explanation Debit Credit (b1) Prepare the entry if the warrants were nondetachable. (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.) Account Titles and Explanation Debit Credit

Answer 1

a
	Debit	Credit
Cash	139500
Discount on Bonds Payable	55400
Bonds Payable		167000
Paid-in Capital - Stock Warrants		27900
b
Cash	139500
Discount on Bonds Payable	27500
Bonds Payable		167000
Workings:
Part a
Value assigned to bonds = 139500/(118400+29600)*118400= $111600
Discount on Bonds Payable = 167000-111600= $55400
Value assigned to warrants = 139500/(118400+29600)*29600= $27900