(Issuance of Bands with Detachable Warrants) On september 1, 2017, Sands Company sold at 104 (plus accrued interest) 4,000 of its 9%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No fair value can be determined for the Sands Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred. Prepare in general journal format the entry to record the issuance of the bonds.

September 1, 2017, bonds issued at a premium, + accrued interests, + stock warrants + issuance costs

Dr Cash 4,220,000

Dr Bond issuance costs 30,000

   Cr Bonds payable 4,000,000

   Cr Premium on bonds payable 136,000

   Cr Additional paid in capital - stock warrants 24,000

   Cr Interest payable  90,000

*Detachable warrants must be recorded separately than the bonds. They must be recorded as APIC stock warrants.

Explanation:

sales price of the bonds = $4,000,000 x 1.04 = $4,160,000

cost of the warrants = $3 x 2 warrants x 4,000 bonds = $24,000

premium on bonds payable = $4,160,000 - $4,000,000 - $24,000 = $136,000

bonds issuance costs (amortizable) = $30,000

accrued interests = $4,000,000 x 9% x 3/12 months = $90,000

total cash received = $4,160,000 + $90,000 - $30,000 = $4,220,000

answer; the above statement is (true);

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