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On May 1, 2017, Bramble Company issued 1,400 $1,000 bonds at 102. Each bond was issued...

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Accounting

On May 1, 2017, Bramble Company issued 1,400 $1,000 bonds at102. Each bond was issued with one detachable stock warrant.Shortly after issuance, the bonds were selling at 97, but the fairvalue of the warrants cannot be determined.

(a) Prepare the entry to record the issuance ofthe bonds and warrants. (Credit account titles areautomatically indented when amount is entered. Do not indentmanually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for theamounts.)

Account Titles and Explanation

Debit

Credit


(b) Assume the same facts as part (a), except thatthe warrants had a fair value of $37. Prepare the entry to recordthe issuance of the bonds and warrants. (Credit accounttitles are automatically indented when amount is entered. Do notindent manually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for the amounts. Round intermediatecalculations to 5 decimal places, e.g. 1.24687 and final answers to0 decimal places, e.g. 5,125.)

Account Titles and Explanation

Debit

Credit

Answer & Explanation Solved by verified expert
4.0 Ratings (676 Votes)

a
Account Titles and Explanation Debit Credit
Cash 1428000 =1400*1000*1.02
Discount on Bonds Payable 42000 =1400*1000*(1-0.97)
        Bonds Payable 1400000 =1400*1000
        Paid-in Capital - Stock Warrants 70000
b
Account Titles and Explanation Debit Credit
Cash 1428000
Discount on Bonds Payable 24469
        Bonds Payable 1400000
        Paid-in Capital - Stock Warrants 52469

Workings:

Market value of Bonds 1358000 =1400*1000*0.97
Market value of Warrants 51800 =1400*37
Total Market value 1409800
Value allocated to Bonds 1375531 =1428000*1358000/1409800
Value allocated to Warrants 52469 =1428000*51800/1409800

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