Question

Hoffman Corporation issued $60 million of 5%, 20-year bonds at 102. Each of the 60,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20, one share of $1 par common stock. At the time of sale, the market value of the common stock was $25 per share and the market value of each warrant was $5. Prepare the journal entry to record the issuance of the bonds.

Answer 1

Date Account titles and Explanation Debit Credit

Cash (60,000*102%) $61,200,000

Discount on bonds payable $1,800,000

(63,000,000-61,200,000)

Bond payable (Face value) $60,000,000

Equity stock warrants outstanding $3,000,000

(60,000 bonds * 10 warrants * $5)

(To record the issue of shares and the share warrants)