Question

On April 1, 2020, Sydney Company issued 300 $1,000 bonds at 98. Each bond was issued with two detachable stock warrants. Shortly after issuance, the bonds were selling at 95, and the warrants were selling for $55 each.

Instructions:
Prepare the entry to record the issuance of the bonds and warrants.

Answer 1

Please refer to the below for explanation

Step-by-step explanation:

Total face value of bond issue

= 300 × $1,000

= 300,000

Bond proceeds

= 300,000 × 0.98

= $294,000

Market value of the bond

= 300,000 × 0.95

= $285,000

Market value of the warrant

= 300,000 × $55

= 316,500

Allocation for market value bonus

= Market value rotation × lump sum

= 285,000/300,000 × 316,500

= 300,675

Market value warrant

= (316,500 - 300,000)/300,000 × 316,500

= 15,640

Total market value

= 300,675 + 15,640

= 316,315

Journal entries

April 1, 2020 Cash Dr 300,675

To Discount 675

To B/P 300,000

Cash Dr 15,740

To PIC - STK warrant 15,640