Question

Blossom 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 97, and the warrants had a market price of $33. Use the proportional method to record the issuance of the bonds and warrants.

Answer 1

Solution:

In the books of the Bloosom Corporation :

Transaction Account Titles and explanation          Debit        Credit

                                                                   Amount in $ Amount in $

1 Cash ( 2,000 x 1,000 x 101 %)                  2,020,000  

Discount on Bonds Payable                             46,461  

Bonds Payable                                                             2,000,000

Paid-in Capital : Stock Warrants                                         66,461

The bond issue proceeds proportionately allocated to the bonds: $\ 2,020,000 \times 970 /(970+33)$  = $ 1,953,539.

Discount on the bonds payable = $ 2,000,000 - $ 1,953,539 = $ 46,461