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dlwtistyle
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| Posted: 16 Jun 2008 at 14:09 | IP Logged
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As i'm doing the hmwk, i'm gonna be posting questions that I dont understand (might happen a lot) and if i run into more problems i'll just keep bumping this thread. any help is much appreciated
This question is from F5 becker
On December 30, 1992, 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, 1992, balance sheet, what amount should Fort report as bonds payable?
a. $1,000,000
b. $975,000
c. $900,000
d. $880,000
Choice "c" is correct. 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:
Cash 1,000,000
Discount 100,000
Paid-in-capital, warrants* 100,000
Bonds payable 1,000,000
*$120,000 / ($1,080,000 + $120,000) = 10%
10% ´ $1,000,000 = $100,000
How and why is this the correct answer? I thought it was choice a. i thought you would record B/P as 1,000,000 and the APIC warrant as 120,000 since it was given
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jwbryant9
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| Posted: 16 Jun 2008 at 14:33 | IP Logged
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Keep this in mind, you ReCORD the bonds at face. You RePORT the bonds face net of premium/discount.
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dlwtistyle
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| Posted: 16 Jun 2008 at 19:24 | IP Logged
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I'm back with 2 more
On March 1, 1990, Cain Corp. issued at 103 plus accrued interest, two hundred of its 9%, $1,000 bonds. The bonds are dated January 1, 1990 and mature on January 1, 2000. Interest is payable semiannually on January 1 and July 1. Cain paid bond issue costs of $10,000. Cain should realize net cash receipts from the bond issuance of:
a. $216,000
b. $209,000
c. $206,000
d. $199,000
Choice "d" is correct. $199,000 net cash receipts from the bond issuance.
Cash: Sales Price [$1,030 ´ 200] 206,000
Accrued Interest [200,000 ´ 9% ´ 2/12] 3,000
Less: Deferred Bond Issue Cost (10,000)
199,000
On June 30, 1990, Huff Corp. issued at 99, one thousand of its 8%, $1,000 bonds. The bonds were issued through an underwriter to whom Huff paid bond issue costs of $35,000. On June 30, 1990, Huff should report the bond liability at:
a. $955,000
b. $990,000
c.$1,000,000
d. $1,025,000
Choice "b" is correct. $990,000 bond liability at 6/30/90.
Rule: Discount or premium on the sale of bonds is included in the carrying value of the bonds on the balance sheet, regardless of whether the bonds are assets or liabilities.
"Bond issue costs" are a deferred charge and are not netted or included in the carrying value of the bonds on the balance sheet.
Sales price of 1,000 bonds x $990 = $990,000 bond liability.
The bond issuance cost is throwing me off bigtime. How and why are they treated differently in these 2 problems? in the 2nd problem i thought it was choice a simply by doing the same thing (or i thought) in the 1st problem.
in the 1st problem it was part of the calculation, in the 2nd it was just ignored, why?
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yanar99
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| Posted: 22 Jun 2008 at 00:27 | IP Logged
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First question asked for CASH RECEIPTS,or amount to debit to CASH account.
Second question asked for BOND LIABILITY, or amount to credit to BONDS PAYABLE.
Tip: Figure out the journal entries for both examples (ie, what to debit and what to credit); from there, you will see clearly how bond issue costs are treated. then you won't be confused anymore. hope this helps.
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nimrod23
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| Posted: 13 Jul 2008 at 16:21 | IP Logged
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On December 31, 1993, Moss Co. issued $1,000,000 of 11% bonds at 109. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitled the bondholder to purchase one share of $5 par common stock for $25. Immediately after issuance, the market value of each warrant was $4. On December 31, 1993, what amount should Moss record as discount or premium on issuance of bonds?
Choice "c" is correct.
1 DR: Cash $1,090,000
4 DR: Discount on bond 110,000
2 CR: Bond payable $1,000,000
3 CR: APIC--Warrants 200,000
does anyone know where the 200,000 comes from? thanks.
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