Question

Hoffman Corporation issued $65 million of 5%, 20-year bonds at 104. Each of the 65,000 bonds was issued with 15 detachable stock warrants, each of which entitled the bondholder to purchase, for $26, one share of $1 par common stock. At the time of sale, the market value of the common stock was $31 per share and the market value of each warrant was $4. Prepare the journal entry to record the issuance of the bonds. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Dr Cash $ 67.6 million

Dr Discount on bonds payable

$ 1.3 million

Cr Bonds payable 65million

Cr Equity-stock warrants outstanding $3.9million

Step-by-step explanation:

Preparation of the journal entry to record the issuance of the bonds

Dr Cash $ 67.6 million

(65,000,000 * 104/100 = $ 67.6 million)

Dr Discount on bonds payable

$ 1.3 million

($65million+$3.9 million-$67.6million)

Cr Bonds payable 65 million

Cr Equity-stock warrants outstanding $3.9million

($4× 15 warrants × 65,000 bonds = $3.9million)

(Being To record issuance of bonds)