Question

The Edmonton Company is issuing $50,000 face value, 10% bonds with detachable stock warrants. The value of the bonds without the warrants is $40,000 and the value of the warrants is a total of $10,000. The bonds with the warrants sold for $55,000. The journal entry to record the sale will include:

Answer 1

Assuming that the warrants are detachable, the journal entry should be:

Dr Cash 55,000

Cr Bonds payable 40,000

Cr Paid-in capital stock warrants 11,000

Cr Premium on bonds payable 4,000

The value of the warrants must be recorded separately under the paid-in capital stock warrants account, and any excess amount will be allocated proportionally between that account and the as a premium on bonds payable account.