On May 1, 2017, Sheffield Company issued 1,900 $1,000 bonds at 102. Each bond wa

Question

On May 1, 2017, Sheffield Company issued 1,900 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the fair value of the warrants cannot be determined.

(a) Prepare the entry to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(b) Assume the same facts as part (a), except that the warrants had a fair value of $22. Prepare the entry to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Explanation / Answer

A Cash 1938000 =1900*1000*1.02 Discount on Bonds Payable 38000 =1900*1000*(1-0.98)        Bonds Payable 1900000        Paid-in Capital—Stock Warrants 76000 B Market value of bonds without warrants 1862000 =1900*1000*0.98 Market value of warrants 41800 =1900*22 Total market value 1903800 Cash 1938000 Discount on Bonds Payable 4551        Bonds Payable 1900000        Paid-in Capital—Stock Warrants 42551 =1938000/1903800*41800

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