3rd Edition

ISBN: 9780136912644

Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella

Publisher: Pearson Education (US)

See similar textbooks

Videos

Textbook Question

Chapter 14, Problem 14.17E

Warrants. DHC Associates issued 2,100 of its $1,000, 8%, 5-year par value bonds. There are no bond issue costs. Interest is paid annually. The market rate on the date of issue was 9%. The market price of DHC common shares on the date that the bonds are issued is $50 per share. The bonds were sold with 50,000 warrants to acquire 50,000 shares of the company’s $1 par value common stock for $40 per share. That is, each bond carries 25 warrants DHC has existing bonds outstanding that trade without warrants at $920. There are other DHC warrants outstanding that trade for $40 each.

Required

a. Determine the issue price of the bonds.
b. Prepare the journal entry to record issuance of the bonds assuming that the warrants are non detachable.
c. Prepare the journal entry to record the issuance of the bonds assuming that the warrants are detachable using the proportional method.
d. Prepare the journal entry to record the issuance of the bonds assuming that the warrants are detachable using the incremental method. Assume that the fair value of the bonds is more reliable.
e. Assuming that the incremental method is used prepare the journal entry required to record the exercise of all warrants.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 14, Problem 14.16E

Chapter 14, Problem 14.18E

Students have asked these similar questions

On December 1, 20x1, AVS Company issued 10% bonds with a face amount of $20 million. The bonds mature in 5 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on May 31 and November 30. AVS is a calendar-year corporation. Determine the price of the bonds at December 1, 20x1. Explain how you compute this price. No credit if not explained. 2. Prepare the journal entry to record the bond issuance on December 1, 20x1. 3. Prepare an amortization table using the effective interest method. 4. Prepare the journal entry (using the effective interest method) on December 31, 20x1 (adjusting entry, no cash payment) 5. Prepare the journal entries (using the effective interest method) on May 31, 20x2 (1st payment). 6. What would be the journal entry if all bonds are retired at 103 on June 1, 20x3 right after the third payment.

At the beginning of current year, Uranus Company issued P5,000,000 face amount, 5-year bond at 109. Each P1,000 bond was issued with 50 detachable share warrants, each of which entitled the bondholder to purchase one ordinary share of P5 par value at P25. Immediately after issuance, the market value of each warrant was P5. The stated interest rate on the bonds is 11% payable annually every December 31. However, the prevailing market rate of interest for similar bonds without warrant is 12%. @ 11% @12% PV of a single payment of 1 for 5 periods 0.59 0.57 PV of an ordinary annuity of 1 for 5 periods 3.70 3.60 What is the initial carrying amount of the bonds payable? 4,985,000 b. 4,830,000…

II. On December 1, 20x1, AVS Company issued 10% bonds with a face amount of $20 million. The bonds mature in 5 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on May 31 and November 30. AVS is a calendar-year corporation. 1. Determine the price of the bonds at December 1, 20x1. Explain how you compute this price. 2.Prepare the journal entry to record the bond issuance on December 1, 20x1. 3. Prepare an amortization table using the effective interest method. 4. Prepare the journal entry (using the effective interest method) on December 31, 20x1 (adjusting entry, no cash payment) 5. Prepare the journal entries (using the effective interest method) on May 31, 20x2 (1st payment). 6. What would be the journal entry if all bonds are retired at 103 on June 1, 20x3 right after the third payment.

Chapter 14 Solutions

Intermediate Accounting

Ch. 14 - What conditions or terms does a note payable...Ch. 14 - If the market rate of interest exceeds the face or...Ch. 14 - What is included in bond issue costs and how...Ch. 14 - Prob. 14.4Q Ch. 14 - When a bond is issued at a discount, will its...Ch. 14 - Prob. 14.6Q Ch. 14 - Prob. 14.7Q Ch. 14 - Under IFRS, how do firms account for convertible...Ch. 14 - Prob. 14.9Q Ch. 14 - Can companies reclassify short-term debt expected...

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Solution Summary: The author calculates the issue price of the bond, assuming warrants are non-detachable, using proportionate method.

Videos

Want to see the full answer?

Chapter 14 Solutions