This bond was issued with a detachable warrant. you need to find cash received for the BOND and the WARRANT.
1.Total cash proceeds from the Bond and Warrant = $1,000,000* 1.03 =1,030,000
2. if $1000 bond was issued with 30 detachable warrant, Total warrant = 30*1000= 30,000 detachable warrant
if the FV of the bond and the warrant is given, use the following steps
CASH ALLOCATED FOR BONDS
Total cash proceeds x FV of bond/ FV of Bond + FV of warrant
CASH ALLOCATED FOR WARRANTS
Total cash proceeds x FV of Warrant/ FV of Bond + FV of warrant
if only the FV of the warrant is given, just go ahead and use the FV the warrant as the cash received for Warrant.
The residual value goes to Bond. In this case, FV of Warrant was given which is $4.
Total cash allocated to warrant is $120,000
Cash……………..120,000dr
Paid in Capital- Warrant……………..120,000 cr (increase in equity)
Bond will be recorded as
Cash………………910,000dr
Discount………….90,000dr
Bonds………………………………………1,000,000cr
hope this helps
REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!
Mass-CPA
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