Exercise 16-7 Account Titles and Explanation Debit Credit Account Titles and Exp

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Exercise 16-7

Account Titles and Explanation

Debit

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Account Titles and Explanation

Debit

Credit

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Exercise 16-7

Metlock Inc. has decided to raise additional capital by issuing $184,000 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 $144,900, and the value of the warrants in the market is $16,100. The bonds sold in the market at issuance for $144,500.

(a) What entry should be made at the time of 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

(b1) Prepare the entry if the warrants were nondetachable. (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.)

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Answer a. If warrants are detachable. Value Assigned to Bonds = Value of Bonds without Warrants / (Value of Bonds Without Warrants + Value of warrants) X Issue Price Value Assigned to Bonds = $144,900 / ($144,900 + $16,100) X $144,500 Value Assigned to Bonds = $130,050 Value Assigned to Warrants = Value of Warrants / (Value of Bonds Without Warrants + Value of warrants) X Issue Price Value Assigned to Warrants = $16,100 / ($144,900 + $16,100) X $144,500 Value Assigned to Warrants = $14,450 Journal Entry Date Particulars Dr. Amt. Cr. Amt. a. Cash                                                                    Dr.    144,500.00 Discount on Issue of Bonds                       Dr.      53,950.00 To Bonds Payable    184,000.00 To Paid-in-Capital - Stock Warrants      14,450.00 Answer b. - If warrants are non-detachable. Journal Entry Date Particulars Dr. Amt. Cr. Amt. a. Cash                                                                    Dr.    144,500.00 Discount on Issue of Bonds                       Dr.      39,500.00 To Bonds Payable    184,000.00

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