Brief Exercise 16-4 Sarasota Corporation issued 2,000 $1,000 bonds at 101. Each

Question

Brief Exercise 16-4 Sarasota Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 99, and the warrants had a market price of $48. Use the proportional method 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 O for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to O decimal places, e.g. 5,125.) Acceunt Titles and Exploati

Explanation / Answer

Fair value of bonds (2,000 X $1,000 X .99) $1,980,000

Cash     2,020,000 Discount on bond payable          73,410 ($2,000,000 - $1,926,590) Bond Payable     2,000,000 Paid in Capital - Stock warrant          93,410

Fair value of bonds (2,000 X $1,000 X .99) $1,980,000

Fair value of warrants (2,000 X $48) 96,000 Equal Aggregate fair value $2,076,000 Allocated to bonds [($1,980/$2,076) X $2,020,000] $1,926,590 Allocated to warrants [($96/$2,076) X $2,020,000] 93,410 2020000

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