FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Recording Entries for Bonds with Warrants On July 1 of Year 1, Salem Corporation authorized $1,900,000 of 7% bonds due in 10 years. The bonds pay cash interest semiannually each June 30 and December 31. Each $1,000 bond includes a detachable stock purchase warrant. Each warrant gives the bondholder the right to purchase, for $30, one share of $1 par value common stock at any time during the next 10 years. The bonds were sold at 101 on July 1 of Year 1. The value of the stock purchase warrants at the time of issuance was $95,000. The bonds would sell without warrants at $ $1,843,000.
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Transcribed Image Text:Recording Entries for Bonds with Warrants On July 1 of Year 1, Salem Corporation authorized $1,900,000 of 7% bonds due in 10 years. The bonds pay cash interest semiannually each June 30 and December 31. Each $1,000 bond includes a detachable stock purchase warrant. Each warrant gives the bondholder the right to purchase, for $30, one share of $1 par value common stock at any time during the next 10 years. The bonds were sold at 101 on July 1 of Year 1. The value of the stock purchase warrants at the time of issuance was $95,000. The bonds would sell without warrants at $ $1,843,000.
a. Record the entry for issuance of bonds on July 1 of Year 1 using the proportional method. •Note: Carry all decimals in calculations; round the final answer to the nearest dollar. This means that your allocation ratio should not be rounded--use no less than four decimal places such as 0.8102. Date July 1 Account Name Date July 1 To record bond issuance. b. Record the entry for issuance of bonds on July 1 of Year 1 assuming instead that the warrants are not detachable. Account Name Debit To record bond issuance. Credit Debit Credit
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Transcribed Image Text:a. Record the entry for issuance of bonds on July 1 of Year 1 using the proportional method. •Note: Carry all decimals in calculations; round the final answer to the nearest dollar. This means that your allocation ratio should not be rounded--use no less than four decimal places such as 0.8102. Date July 1 Account Name Date July 1 To record bond issuance. b. Record the entry for issuance of bonds on July 1 of Year 1 assuming instead that the warrants are not detachable. Account Name Debit To record bond issuance. Credit Debit Credit
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Step 1: Warrants
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Step 2: Journal Entries
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Step 3: Computation of total market value and issue price
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