Bonita Industries Bond Issuance: Determining the Discount on Bonds with Detachable Warrants

To determine how Bonita should record the bonds on May 1, 2018, we need to compare the fair value of the bonds without the warrants to the issue price, as well as consider the fair value of the detachable warrants.

The bonds without the warrants would sell at 96, but they were issued at 103. This means there is a premium of $7 per bond.

The fair value of the detachable warrants should be allocated in proportion to the relative fair values of the bonds with and without warrants.

Allocation ratio = Fair value of bonds without warrants / (Fair value of bonds without warrants + Premium) Allocation ratio = $96 / ($96 + $7) = $96 / $103 = 0.932

To calculate the initial carrying value of the bonds, we need to consider the issue price and the fair value of the detachable warrants.

Initial carrying value of bonds = Issue price - (Fair value of warrants * Allocation ratio) Initial carrying value of bonds = $103 - ($2 * 0.932) = $103 - $1.864 = $101.136

Since the issue price ($103) is greater than the initial carrying value of the bonds ($101.136), Bonita should record the bonds with a discount.

Discount on bonds = Issue price - Initial carrying value of bonds Discount on bonds = $103 - $101.136 = $1.864

However, we need to calculate the total discount by multiplying the discount per bond by the number of bonds issued.

Total discount = Discount on bonds * Number of bonds Total discount = $1.864 * ($2,700,000 / $1,000) = $5,032.8 (approximately $5,033)

Therefore, the correct answer is not provided in the answer choices. The correct answer is a discount of approximately $5,033.