Pharoah Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 99, and the warrants had a market price of $48.
1. Use the proportional method to record the issuance of the bonds and warrants.

Explanation:

The journal entries are shown below:

Cash Dr $2,020,000

Discount on notes payable $73,411

         To Notes payable $2,000,000

         To Paid in capital - stock warrants $93,411

(Being the issuance of the bonds and stock warrant is recorded)

The computation is shown below:

For cash

= 2,000 × $1,000 × 101%

= $2,020,000

For discount on bond payable

= $2,020,000 × 990 ÷ (990 + 48)

= $1.926,589

So

= $2,000,000 - $1,926,589

= $73,411

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