Hoffman Corporation issued $80 million of 8%, 20-year bonds at 105. Each of the 80,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20, one share of $1 par common stock. At the time of sale, the market value of the common stock was $25 per share and the market value of each warrant was $7. Prepare the journal entry to record the issuance of the bonds.

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Stephanie Parsons

Business

11 June, 19:11

Hoffman Corporation issued $80 million of 8%, 20-year bonds at 105. Each of the 80,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20, one share of $1 par common stock. At the time of sale, the market value of the common stock was $25 per share and the market value of each warrant was $7. Prepare the journal entry to record the issuance of the bonds.

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Alessandra Wu · Answer 1

cash 84,000,000 debit

discount on BP 1,250,000 debit

bonds payable 80,000,000 credit

warrant of CS 5,250,000 credit

Explanation:

bond (1,000 x 105/100) 1050 93.75% (1050/1120)

warrant ($7 x 10 per share) 70 6.25% (70/1120)

Total per share 1120

Cash proceeds: 80,000 x 1,000 x 105/100 = 84,000,000

Bonds x 93.75 = 78,750,000

Warrant x 6.25 = 5,250,000

Bonds face value 80,000,000

proceeds 78,750,000

discount 1,250,000

journal entry

cash 84,000,000 debit

discount on BP 1,250,000 debit

bonds payable 80,000,000 credit

warrant of CS 5,250,000 credit