(Issuance of Bonds with Detachable Warrants) On September 1, 2014, Universal Coa

Question

(Issuance of Bonds with Detachable Warrants) On September 1, 2014, Universal Coat Company sold at 104 (plus accrued interest) 3,000 of its 8%, 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 $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No market value can be determined for the Universal Coat Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred. Instructions Prepare in general journal format the entry to record the issuance of the bonds.

Explanation / Answer

Cash 3150000 Unamortized Bond Issuance Costs 30000           Bonds Payable 3000000           Premium on Bonds Payable 102000           Paid in capital – Warrants 18000 (3000*2*3)           Bond Interest Expense 60000 =3000000*8%/12*3

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