Incurring long-term debt with an arrangement whereby lenders receive an option to buy common stock during all or a portion of the time the debt is outstanding is a frequent corporate financing practice. In some situations, the result is achieved through the issuance of convertible bonds; in others, the debt instruments and the warrants to buy stock are separate. At the start of the year, Whispering Company issued $18,300,000 of 12% bonds along with detachable warrants to buy 1,300.000 shares of its $10 par value common stock at $18 per share. The bonds mature over the next 10 years, starting one year from date of issuance, with annual maturities of $1,830,000. At the time, Whispering had 9,600,000 shares of common stock outstanding. The company received $20,774,000 for the bonds and the warrants. For Whispering Company, 12% was a relatively low borrowing rate. If offered alone, at this time, the bonds would have sold in the market at a 22% discount. Prepare the journal entry for the issuance of the bonds and warrants for the cash consideration received. (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Incurring long-term debt with an arrangement whereby lenders receive an option to buy common stock during all or a portion of the time the debt is outstanding is a frequent corporate financing practice. In some situations, the result is achieved through the issuance of convertible bonds; in others, the debt instruments and the warrants to buy stock are separate. At the start of the year, Whispering Company issued $18,300,000 of 12% bonds along with detachable warrants to buy 1,300.000 shares of its $10 par value common stock at $18 per share. The bonds mature over the next 10 years, starting one year from date of issuance, with annual maturities of $1,830,000. At the time, Whispering had 9,600,000 shares of common stock outstanding. The company received $20,774,000 for the bonds and the warrants. For Whispering Company, 12% was a relatively low borrowing rate. If offered alone, at this time, the bonds would have sold in the market at a 22% discount. Prepare the journal entry for the issuance of the bonds and warrants for the cash consideration received. (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Incurring long-term debt with an arrangement whereby lenders receive an option to buy common stock during all or a portion of the
time the debt is outstanding is a frequent corporate financing practice. In some situations, the result is achieved through the issuance
of convertible bonds; in others, the debt instruments and the warrants to buy stock are separate.
At the start of the year, Whispering Company issued $18,300,000 of 12% bonds along with detachable warrants to buy 1,300.000
shares of its $10 par value common stock at $18 per share. The bonds mature over the next 10 years, starting one year from date of
issuance, with annual maturities of $1,830,000. At the time, Whispering had 9,600,000 shares of common stock outstanding. The
company received $20,774,000 for the bonds and the warrants. For Whispering Company, 12% was a relatively low borrowing rate. If
offered alone, at this time, the bonds would have sold in the market at a 22% discount.
Prepare the journal entry for the issuance of the bonds and warrants for the cash consideration received. (If no entry is required, select
"No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not
indent manually.)
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Debit
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