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General Accounting Discussions: Journal detachable warrants

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  1.  
    • CommentAuthormamack
    • CommentTimeMar 2nd 2008
     
    Issured 3,000,000 of 9% bonds payable in 20 years - included detachable warrants giving the bondholder the right to purchase for $30 on share of $1 par value common stock at any time during the next 10 years. The bonds were sold for 3,000,000. the value of the warrants at the time of issuance was $200,000. I need to prepare a journal entry to record this transaction.
  2.  
    based on the above data, i think there is something missing, usually the bond are sold at premuim or discount, but how much will the premuim and discount be? the answer is that the price is based upon the following formula:

    Bond selling price=present value of the principal + present value of the interest payments

    before i can compute that, i need the market rate of interest. the market rate of interest is different from the contract rate which is 9% as shown on the above data.

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