Final answer:
To record the issuance of the bonds and warrants using the proportional method, we would increase bonds payable and common stock, and decrease cash. Additionally, we would also increase bonds payable and additional paid-in capital to record the issuance of the stock warrants. The allocation of the proceeds is done based on the relative values of the bonds and warrants.
Step-by-step explanation:
When Marin Corporation issued the 1,900 $1,000 bonds at 101, the company received $1,919,000 ($1,900,000 for the bonds and $19,000 for the stock warrants). Since the bonds had a market price of 98 and the warrants had a market price of $38, we need to allocate the proceeds between the bonds and the warrants based on their relative values.
To do this, we can calculate the total value of the bonds and warrants by multiplying their market prices by the number of units. The total value of the bonds is $1,900,000 × 98% = $1,862,000. The total value of the warrants is $19,000 × $38 = $722,000.
Now we can calculate the percentage that each component (bonds and warrants) represents of the total value. The bonds represent $1,862,000 / $2,584,000 = 72% of the total value, and the warrants represent $722,000 / $2,584,000 = 28% of the total value.
To record the issuance of the bonds and warrants using the proportional method, we would:
- Increase bonds payable by $1,900,000 × 72% = $1,368,000
- Increase common stock by $1,900,000 × 72% = $1,368,000
- Decrease cash by $1,900,000 × 100% = $1,900,000
- Increase bonds payable by $19,000 × 28% = $5,320
- Increase additional paid-in capital by $19,000 × 28% = $5,320