Gomez Company issues 5000000 of bonds with a coupon rate of

Gomez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $4,935,000 and the value of the warrants is $315,000. The bonds with the warrants sold at 101.

Solution

Cash........................................................................................................ 5,050,000

      Discount on Bonds Payable.............................................................      253,000

                  Bonds Payable......................................................................                        5,000,000

                  Paid-in Capital—Stock Warrants......................................                           303,000

                       ($315,000 ÷ $5,250,000 × $5,050,000 = $303,000)