Hoffman Corporation issued $90 million of 9%, 20-year bonds at 106. Each of the

Question

Hoffman Corporation issued $90 million of 9%, 20-year bonds at 106. Each of the 90,000 bonds was issued with 16 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. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

issue price of bonds with detachable warrants is allocated between the two different securities on the basis of their market values.

Cash (106% × $90 million) = $95.4 million

Equity—stock warrants outstanding ($5 × 16 warrants × 90,000 bonds) =

Event general journal debit credit 1 cash (90*106%) 95. 4 Discount on Bonds payable (difference) (balancing figure) 1.8 Bonds payable 90 Equity - stock warrants 7.2

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