Question

Whispering Corporation issued 2,200 $1,000 bonds at 103. 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 $46. Use the proportional method to record the issuance of the bonds and warrants.

Answer 1

Answer:

Account Titles and Explanation	Debit ($)	Credit ($)
Cash (2,200,000 x 1.03)	$2,266,000
Discount on bonds payable (2,200,000 - 2,164,405)	$35,595
Bonds payable (2200 x $1000)		$ 2,200,000
Paid-in-capital - Stock warrants		$101,595
(To record issuance of bonds with stock warrants)

Working note:

Fair value of bonds (2,200,000 x 0.98)	$2,156,000
Fair value of warrants (2200 x 46)	$101,200
Total fair value	$2,257,200
Issue price assigned to bonds (2,266,000/2,257,200)*2,156,000	$2,164,405
Issue price assigned to stock warrants (2,266,000/2,257,200)*101,200	$101,595