Question

Illiad Inc. has decided to raise additional capital by issuing $170,000 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 $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000. Instructions a. What entry should be made at the time of the issuance of the bonds and warrants

Answer 1

Answer:

A. Dr Cash 152,000

Dr Discount on bonds payable 40,800

Cr Bond Payable 170,000

Cr Paid-in Capital-Stock Warrants 22,800

B.Dr Cash 152,000

Dr Discount on bonds payable 18,000

Cr Bond Payable 170,000

Explanation:

A. Preparation of the Journal entry that should be made at the time of the issuance of both the bonds and warrants

Dr Cash 152,000

Dr Discount on bonds payable 40,800

($170,000 - $129,200)

Cr Bond Payable 170,000

Cr Paid-in Capital-Stock Warrants 22,800

[(152,000+40,800)-170,000]

B. Preparation of the Journal entry if the warrants were nondetachable

Dr Cash 152,000

Dr Discount on bonds payable 18,000

(170,000-152,000)

Cr Bond Payable 170,000