Explanation Warrants: Bonds issued with stock warrants are long term in nature which acquires a stated number of shares of common stock for a stated price. It can be two types: Detachable warrants are the warrants which can be removed by the holder and sold separately in the secondary market. Non-detachable warrants are the warrants in which total debt proceeds received are typically assigned to the debt issued there is no allocation between debt and equity. Journalizing: Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger accounts. Accounting rules for journal entries: To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains. To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains. Following is the required journal entry passed for recording issue of bond: Date Account Title & Explanation Post ref. Debit ($) Credit ($) Cash 9,480,000 Discount 113,868 Bond Payable 6,000,000 Additional paid up capital 3,593,868 ( being issuance of bond recorded ) Table (1) Cash is an asset for the company. Cash is being received for the bonds issued indicating an increase in the asset account hence, cash account is debited. Discount is an expense for the company as the company is providing benefit to the investors. Therefore, discount on bonds account is being debited with $113,868. Bond payable is a liability for the company, as the company need to pay back them in the future, indicating increase in the liability hence credited with $6,000,000. Paid-up Capital is capital in nature...

2nd Edition

ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 14, Problem 14.28BE

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To prepare: The journal entry to record issuance of bonds assuming that the company is using proportional method.

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Hoffman Corporation issued $60 million of 8%, 20-year bonds at 105. Each of the 60,000 bonds was issued with 13 detachable stock warrants, each of which entitled the bondholder to purchase, for $26, one share of $1 par common stock. At the time of sale, the market value of the common stock was $31 per share and the market value of each warrant was $5. Prepare the journal entry to record the issuance of the bonds.

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Chapter 14 Solutions

Intermediate Accounting (2nd Edition)

Ch. 14 - What conditions or terms does a note payable...Ch. 14 - If the market rate of interest exceeds the face or...Ch. 14 - What is included in bond issue costs and how...Ch. 14 - Prob. 14.4Q Ch. 14 - When a bond is issued at a discount, will its...Ch. 14 - Prob. 14.6Q Ch. 14 - Prob. 14.7Q Ch. 14 - Under IFRS, how do firms account for convertible...Ch. 14 - Prob. 14.9Q Ch. 14 - Can companies reclassify short-term debt expected...

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The journal entry to record issuance of bonds assuming that the company is using proportional method.

Solution Summary: The author explains the process of journalizing the transactions of an organization in a chronological order.

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