Recording Entries for Bonds with Warrants
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Recording Entries for Bonds with
Warrants
On July 1 of Year 1, Salem
Corporation authorized
$1,900,000 of 7% bonds due in 10
years. The bonds pay cash
interest semiannually each June
30 and December 31. Each $1,000
bond includes a detachable stock
purchase warrant. Each warrant
gives the bondholder the right to
purchase, for $30, one share of $1
par value common stock at any
time during the next 10 years. The
bonds were sold at 101 on July 1
of Year 1. The value of the stock
purchase warrants at the time of
issuance was $95,000. The bonds
would sell without warrants at $
$1,843,000.

Transcribed Image Text:a. Record the entry for issuance of bonds on July 1 of Year 1 using the proportional method.
•Note: Carry all decimals in calculations; round the final answer to the nearest dollar. This means that your allocation ratio
should not be rounded--use no less than four decimal places such as 0.8102.
Date
July 1
Account Name
Date
July 1
To record bond issuance.
b. Record the entry for issuance of bonds on July 1 of Year 1 assuming instead that the warrants are not detachable.
Account Name
Debit
To record bond issuance.
Credit
Debit
Credit
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