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Chapter 16: Q5BE. (page 874)

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the warrants without the bonds cannot be determined. Use the incremental method to record the issuance of the bonds and warrants.

Short Answer

Expert verified

Cash and Discount on Bonds Payable will be debited with $2,020,000 and $40,000, respectively. Bonds Payable and Paid-in Capital- Stock Warrants will be credited with $2,000,000 and $60,000, respectively.

Step by step solution

01

The following details are provided

We have:

Discount on Bonds Payable $40,000 [$2,000,000 X (1 – .98)]

Paid-in Capital—Stock Warrants $60,000 [$2,000,000 X (1.01 – .98)]

02

Journal entry

Date

Description

DEBIT

CREDIT

Cash

$2,020,000

Discount on Bonds Payable

$40,000

Bonds Payable

$2,000,000

Paid-in Capital—Stock Warrants

$60,000

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Most popular questions from this chapter

What are the arguments for giving separate accounting recognition to the conversion feature of debentures?

IFRS16-3 Norman Co., a fast-growing golf equipment company, uses GAAP. It is considering the issuance of convertible bonds. The bonds mature in 10 years, have a face value of \(400,000, and pay interest annually at a rate of 4%. The equity component of the bond issue has a fair value of \)35,000. Greg Shark is curious as to the difference in accounting for these bonds if the company were to use IFRS.

(a) Prepare the entry to record issuance of the bonds at par under GAAP.

(b) Repeat the requirement for part (a), assuming application of IFRS to the bond issuance.

(c) Which approach provides the better accounting? Explain.

What are the advantages of using restricted stock to compensate employees?

Accounting for Restricted Stock) Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2017. The stock has a fair value of \(120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with the company for 4 years. The par value of the stock is \)5. At December 31, 2018, the fair value of the stock is $145,000.

Instructions

(a) Prepare the journal entries to record the restricted stock on January 1, 2017 (the date of grant), and December 31, 2018.

(b) On March 4, 2019, Yaping leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of \(160 per bond to induce conversion into shares of its common stock. Upon conversion of all the bonds, Bridgewater Corp. recorded the \)160,000 premium as a reduction of paid-in capital. Comment on Bridgewater’s treatment of the $160,000 “sweetener.”
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