Problem #2 On April 1, 2014, Windel Corporation issued bonds with detachable war

Question

Problem #2 On April 1, 2014, Windel Corporation issued bonds with detachable warrants. Information related to these bonds is shown below: Face value of bonds $305,000 Stated rate of interest 10% Bonds issued at 102 Each $1,000 bond was sold with 26 detachable warrants Each warrant allowed the investor to purchase one share of common stock for $18 The par value of the common stock is $8 On April 1, 2014 the market values were: Common stock $13 Warrants $2 In February 2019, when Windel's common stock had a market price of $30 per share, one-third of the warrants were exercised. Required: a. Prepare the journal entry for the issuance of the bonds with the detachable warrants. b. Prepare the journal entry to record the exercise of the warrants. Problem #2 On April 1, 2014, Windel Corporation issued bonds with detachable warrants. Information related to these bonds is shown below: Face value of bonds $305,000 Stated rate of interest 10% Bonds issued at 102 Each $1,000 bond was sold with 26 detachable warrants Each warrant allowed the investor to purchase one share of common stock for $18 The par value of the common stock is $8 On April 1, 2014 the market values were: Common stock $13 Warrants $2 In February 2019, when Windel's common stock had a market price of $30 per share, one-third of the warrants were exercised. Required: a. Prepare the journal entry for the issuance of the bonds with the detachable warrants. b. Prepare the journal entry to record the exercise of the warrants.

Explanation / Answer

Allocation :

Number of warrants = 305000* 26/1000 = 7930

Value of warrant = 7930 *18=

Date Account title Debit credit a cash       [305000*102/100] 311,100 stock warrant payable 142,740 Bond payable 168360 b Stock warrant payable     [7930*30*1/3] 79300 common stock               [7930 * 8*1/3] 21147 Additional paid in capital 58153

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