[Hangry]

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 price 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?

The answer is $900,000.

Debit (Dr) Credit (Cr)
Cash $ 1,000,000
Discount 100,000
Paid-in-capital, warrants* $ 100,000
Bonds payable 1,000,000

So my question is why is the answer not $1,000,000? The JE provided says “Bonds payable 1,000,000”.

FAR: 49, 64

[hrunge]

hey,

its because when the question is asking for ‘report' it is net of discount/premium. If the question asked how much the bonds payable should be recorded for, it would be $1,000,000. It is always reCORDED at face, but rePORTED net.

[Author]

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