Issuance of the bonds and warrants for the cash consideration
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At the start of the year the Clear Alcohol Company issued $18,000,000 of 12% bonds along with warrants to buy 1,200,000 shares of its $10 par value common stock at $18 per share. The bonds mature over the next 10 years, starting one year from date of issuance, with annual maturities of $1,800,000. At the time, the Clear Alcohol Company had 9,600,000 shares of common stock outstanding, and the market price was $23 per share. The company received $20,040,000 for the bonds and the warrants. For the Clear Alcohol Company, 12% was a relatively low borrowing rate. If offered alone, at this time, the bonds would have been issued at a 22% discount. Prepare the journal entry (or entries) for the issuance of the bonds and warrants for the cash consideration received.
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Solution Summary
The solution discusses how the Clear Alcohol Company issues bonds along with warrants to buy shares of its value common stock. A journal entry is created with cash considerations.
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