Grouper Inc. has decided to raise additional capital by issuing $168,000 face va

Question

Grouper Inc. has decided to raise additional capital by issuing $168,000 face value of bonds with a coupon rate of 9%. 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 one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $154,800, and the value of the warrants in the market is $17,200. The bonds sold in the market at issuance for $154,000. (a) What entry should be made at the time of the issuance of the bonds and warrants?

Explanation / Answer

Value assigned to bonds 138600 =154000/(154800+17200)*154800 Value assigned to warrants 15400 =154000/(154800+17200)*17200 a Cash 154000 Discount on Bonds Payable 29400 =168000-138600         Bonds Payable 168000         Paid-in Capital - Stock Warrants 15400

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