MagTech Inc. requires funding to build a new factory and has decided to raise the additional capital by issuing $850,000 face va
lue of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of 5 warrants for each $1,000 bond sold.
The value of the bonds without the warrants is considered to be $775,000, and the value of the warrants in the market is $75,000. The bonds sold in the market at issuance for $825,000.
Required:
(a) What entry should be made at the time of the issuance of the bonds and warrants?(b) If the warrants were nondetachable, would the entries be different? Discuss.
The value of the bonds without the warrants is considered to be $775,000, and the value of the warrants in the market is $75,000. The bonds sold in the market at issuance for $825,000.
Required:
(a) What entry should be made at the time of the issuance of the bonds and warrants?(b) If the warrants were nondetachable, would the entries be different? Discuss.
1 answer:
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