Your answer is partially correct. Try again On September 1, 2017, Buffalo Compan

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Your answer is partially correct. Try again On September 1, 2017, Buffalo Company sold at 104 (plus accrued interest) 4,200 of its 996, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $14 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No fair value can be determined for the Buffalo Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $23,900 were incurred Prepare in general journal format the entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Cash 4368000 Unamortized Bond Issue Costs 23900 Bonds Payable 4200000 Paid-in Capital-Stock Warrants 49600 Bond Interest Expense 94500

Explanation / Answer

Lump Sum Receipt (4,200 bond certificates x $1,000 face value/bond certificate x 104%) $4,368,000
Less: Amount allocated to warrants (4,200 certificate x 2 warrants/certificate x $3/warrant) 25,200
Balance allocated to bonds $4,342,800

Account Titles and Explanation Debit Credit Cash {($4,200,000 x 104% = $4,368,000) + ($4,200,000x 9%/12 mo x 3 mo = $94,500) - $23,900} $4,438,600 Unamortized Bond Issue Costs $23,900   Bonds Payable (4,200 bonds x $1,000 face value/bond) $4,200,000   Premium on Bonds ($4,342,800 value assigned to bonds - $4,200,000 face value) $142,800   Paid in Capital - Stock Warrants (amount allocated to warrants below) $25,200   Interest Payable (FV x std rate x time = $4,200,000 x 9%/12 mo x 3 mo) $94,500

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