Exercise 16-9 On May 1, 2017, Metlock Company issued 1,800 $1,000 bonds at 102.

Question

Exercise 16-9

On May 1, 2017, Metlock Company issued 1,800 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the fair value of the warrants cannot be determined.

(a) Prepare the entry to record the issuance of the bonds and warrants. (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

(b) Assume the same facts as part (a), except that the warrants had a fair value of $27. Prepare the entry to record the issuance of the bonds and warrants. (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. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Explanation / Answer

No. Account Titles and Explanation Debit Credit (a) Cash ($1,800,000 X 1.02) $1,836,000 Discount on Bonds Payable [(1 – 0.98) X $1,800,000] $36,000 Bonds Payable $1,800,000 Paid-in Capital—Stock Warrants   $1,836,000 – ($1,800,000 X .98) $72,000 (b) Cash $1,836,000 Discount on Bonds Payable $12,600 Bonds Payable $1,800,000   Paid-in Capital—Stock Warrants (1,800 x $27) $48,600

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