Choice "D" is correct. Discount on bonds payable.Rule: Allocate amounts separately to debt and detachable warrants according to their FMV at date of issuance. The amount allocated to warrants is "paid-in capital." Any difference between the amount paid (proceeds) and the combination of FMVs of debt and warrants should be debited or credited to "discount or premium on bonds payable." In this case, however, only the warrants had a known market value. The bonds have an "implied" market value which is equal to the difference between the cash received and the FMV of the warrants.
Illustration: | Amounts
Assumed |
|---|
| Fair value of warrants | $ 5,000 |
| Face amount of bonds | 100,000 |
| Subtotal | 105,000 |
| Cash proceeds received | (102,000) |
| Discount on bonds payable | $ 3,000 |
