On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 103, which are due on A
ID: 2423572 • Letter: O
Question
On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Payne's common stock was $35 per share and of the warrants was $2.
A. (2 Points) Using the proportional method, record the issuance of the bonds and warrants.
B. (2 Points) If the market price of the warrants without the bonds cannot be determined, use the incremental method to record the issuance of the bonds and warrants.
Explanation / Answer
Answer A
Working Notes :-
Add
Fair value of bonds (900000*96%) $864000
Fair value of warrants (180000 * 2) $ 360000
Equal Aggregate fair value => $1224000
Allocated to bonds [(864000/1224000) * 927000] => $654353
Allocated to warrants [[(360000/1224000) * 927000] => $272647
Fair Answer
Cash A/c Dr. $927000
Discount on Bonds Apyable A/c dr. $245647
To bonds Payable A/c cr. $900000
To Paid in Capital Stock Warrants A/c cr. $272647
Answer B
Cash A/c Dr. $927000
Discount on Bonds Apyable A/c dr. $36000
To bonds Payable A/c cr. $900000
To Paid in Capital Stock Warrants A/c cr. $63000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.