Paulson Company issues 7%, four-year bonds, on December 31, 2013, with a par value of $91,000 and semiannual interest payments. Semiannual Period-End Unamortized Discount Carrying Value (0) 12/31/2013 $ 6,553 $ 84,447 (1) 6/30/2014 5,734 85,266 (2) 12/31/2014 4,915 86,085 Use the above straight-line bond amortization table and prepare journal entries for the following. (a) The issuance of bonds on December 31, 2013. (b) The first interest payment on June 30, 2014. (c) The second interest payment on December 31, 2014.

Paulson Company issues 7%, four-year bonds, on December 31, 2013, with a par value of $91,000 and semiannual interest payments.
   

Semiannual Period-End			Unamortized Discount			Carrying Value
(0)	12/31/2013		$	6,553		$	84,447
(1)	6/30/2014			5,734			85,266
(2)	12/31/2014			4,915			86,085

   

Use the above straight-line bond amortization table and prepare journal entries for the following.

(a)	The issuance of bonds on December 31, 2013.
(b)	The first interest payment on June 30, 2014.
(c)	The second interest payment on December 31, 2014.

Explanation: (b)

Discount on Bonds Payable = $6,553 – $5,734 = $819

Cash = $91,000 × 7% × 1/2 = $3,185

(c)

Discount on Bonds Payable = $5,734 – $4,915 = $819

Cash = $91,000 × 7% × 1/2 = $3,185

Hoffman Corporation issued $58.9 million of 5%, 11year bonds at 101.1. Each of the 58,900 bonds was issued with 13 detachable stock warrants, each of which entitled the bondholder to purchase, for $11, one share of $1 par common stock. At the time of sale, the market value of the common stock was $26 per share and the market value of each warrant was $14. Prepare the journal entry to record the issuance of the bonds.

Hoffman Corporation issued $58.9 million of 5%, 11year bonds at 101.1. Each of the 58,900 bonds was issued with 13 detachable stock warrants, each of which entitled the bondholder to purchase, for $11, one share of $1 par common stock. At the time of sale, the market value of the common stock was $26 per share and the market value of each warrant was $14.

Prepare the journal entry to record the issuance of the bonds. (Enter your answers in millions to onedecimal place. Omit the "$" sign in your response.)

General Journal Debit Credit

Cash 59.5

Discount on bonds payable 10.1

Bonds payable 58.9

Equity stock

warrants outstanding 10.7

rev: 02082011

Explanation:

The issue price of bonds with detachable warrants is allocated between the two different securities on the

basis of their market values.

Cash (101.1% × $58.9 million) = 59.5

Equity stock

warrants outstanding ($14 × 13 warrants × 58,900 bonds) = 10.7