Question

Cullumber Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $41. Use the proportional method to record the issuance of the bonds and warrants.

Answer 1

Answer: Please refer to Explanation

Step-by-step explanation:

Using the proportional method, we will first calculate the bond issue proceeds proportionally allocated to bonds:

= 2,000 * 1,000 * 101% * 980/(980+41)

= $2,020,000 * 980/(980+41)

= $1,938,883.45

Then calculating the discount on bonds payable we have,

= $2,000,000 - $1,938,883.45

= $61,116.55

Journalizing them we have,

DR Cash (2,000*1,000*101%) $2,020,000

DR Discount on Bonds Payable $61,116.55

CR Bonds Payable (par value) $2,000,000

CR Paid-in Capital Warrants $81,116.55

( To record issuance of Bonds)

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