E16-7 Illiad Inc. has decided to
raise additional capital by issuing $170,000 face value of bonds with a
coupon rate of 10%. 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 $136,000, and the value of the
warrants in the market is $24,000. The bonds sold in the market at issuance for
$152,000.
(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.)
(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.)
Account Titles and Explanation
Debit Credit
(b) 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.)
TUTORIAL PREVIEW
(a) Basic formulas:
|
Value of bonds without warrants
|
X Issue price = Value assigned to bonds
|
|
Value of bonds without warrants + Value of warrants
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