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I’m curious about the JE Becker gave as an explanation to this problem:
CPA-00480
On December 30, Year 1, Fort, Inc. issued 1,000 of its 8%, 10-year, $1,000 face value bonds with detachable stock warrants at par. Each bond carried a detachable warrant for one share of Fort’s common stock at a specified option prices of $25 per share. Immediately after issuance, the market value of the bonds without the warrants was $1,080,000 and the market value of the warrants was $120,000. In its December 31, Year 1, balance sheet, what amount should Fort report as bonds payable?
Answer: 900,000, the net bonds payable is $1,000,000 less $100,000, or $900,000.
The issuance of bonds with detachable stock warrants would be recorded as:
Cr: Cash $1,000,000
Cr: Discount 100,000
Dr: Paid-in-capital, warrants 100,000
Dr: Bonds payable 1,000,000
^^ That’s Becker’s JE.. is that wrong?
Why is there a discount if issued as par, I too calculated Bonds Payable at 900,000.. but my reasoning is the the JE should be
Cr: Cash $1,000,000
Dr: Paid-in-capital, warrants 100,000
Dr: Bonds payable 900,000
FAR 73 78
BEC 73 82
AUD 65 83
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