Final answer:
The accounting entry for Friendly Company's issuance of 2,000 bonds at 102 without a fair value for the detachable warrants would debit Cash for $2,040,000 and credit Bonds Payable for the same amount, reflecting the premium received on the bonds.
Step-by-step explanation:
The student is dealing with a corporate finance issue, specifically the accounting for the issuance of bonds with detachable warrants in a business setting. On May 1, 2025, Friendly Company issued 2,000 bonds, each with a face value of $1,000, at 102 percent of the face value; however, without a fair value for the warrants, the entry cannot be split between bonds and warrants. Because the fair value of the warrants is not available, the entire proceeds are credited to the bonds payable account. The issuance at 102 means that the company received 102% of the face value of the bonds, which is an indication of a premium on the bonds.
Here's the journal entry for the issuance of the bonds and warrants:
- Debit Cash $2,040,000 (2,000 bonds × $1,000 face value × 102%)
- Credit Bonds Payable $2,040,000
The subsequent market price of the bonds (98) post-issuance does not affect the accounting for the initial issuance.