Question

Hoffman Corporation issued $80 million of 7%, 10-year bonds at 104. Each of the 80,000 bonds was issued with 11 detachable stock warrants, each of which entitled the bondholder to purchase, for $22, one share of $1 par common stock. At the time of sale, the market value of the common stock was $27 per share and the market value of each warrant was $5. Prepare the journal entry to record the issuance of the bonds. (En

Answer 1

Answer:

($ in million)

Dr Cash 81.6

Dr Discount on bonds payable 2.8

Cr Bonds payable80.0

Cr Equity-stock warrants outstanding 4.4

Explanation:

Preparation of the journal entry to record the issuance of the bonds.

($ in million)

Dr Cash 81.6

(80,000,000 X 102/100 = $81.6 million)

Dr Discount on bonds payable 2.8

(80+4.4-81.6 = $ 2.8 million balancing figure)

Cr Bonds payable 80.0

Cr Equity-stock warrants outstanding 4.4

($5 × 11 warrants × 80,000 bonds= $4.4 million)

(Being To record issuance of bonds)