Question

Marigold Inc. has decided to raise additional capital by issuing $184,000 face value of bonds with a coupon rate of 9%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $144,900, and the value of the warrants in the market is $16,100. The bonds sold in the market at issuance for $144,500. (a) What entry should be made at the time of the issuance of the bonds and warrants

Answer 1

Account Titles Debit Credit

Cash $144,500

Discount on Bonds Payable $‭53,941‬

Bonds Payable $184,000

Paid-in Capital Stock Warrants $ 14,441

Working:

Discount on bonds payable = Bonds payable + Paid in capital stock warrant - cash

= 184,000 + 14,441 - 144,500

= $‭53,941‬

Value of bonds with warrants:

= 144,900 + 16,100

= $161,100

Value of warrants is therefore:

= Cash received / Value of bond with warrants * value of warrants

= 144,500 / 161,100 * 16,100

= $14,441