Hoffman Corporation issued 90 million of 9 20year bonds at 1

Hoffman Corporation issued $90 million of 9%, 20-year bonds at 106. Each of the 90,000 bonds was issued with 16 detachable stock warrants, each of which entitled the bondholder to purchase, for $26, one share of $1 par common stock. At the time of sale, the market value of the common stock was $31 per share and the market value of each warrant was $5.

Prepare the journal entry to record the issuance of the bonds. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)

Solution

issue price of bonds with detachable warrants is allocated between the two different securities on the basis of their market values.

Cash (106% × $90 million) = $95.4 million

Equity—stock warrants outstanding ($5 × 16 warrants × 90,000 bonds) =