1. Why the cash is calculated as 9705882, the allocated price, not fair value , the 9900000 of the market price?

2. then the discount of the bond is still the difference between face value (10000000) and cash (9705882) relative price, not between 1000000( face value) and fair market price (9900000) Thanks.

For example, assume that AT&T's bonds (par $1,000) sold for 99 without the warrants soon after their issue. The market price of the warrants at that time was $30. (Prior to sale the warrants will not have a fair value.) The allocation relies on an estimate of fair value, generally as established by an investment banker, or on the relative fair value of the bonds and the war- rants soon after the company issues and trades them. The price paid for 10,000, $1,000 bonds with the warrants attached was par, or $10,000,000. Illustration 16.1 shows the proportional allocation of the bond proceeds between the bonds and warrants. In this situation, the bonds sell at a discount. AT&T records the sale as follows. Cash 9,705,882 Discount on Bonds Payable 294,118 Bonds Payable 10,000,000 In addition, AT&T sells warrants that it credits to paid-in capital. It makes the following entry. Cash 294,118 Paid-in Capital Stock Warrants 294,118 $ 9,900,000 300,000 $10,200,000 Fair value of bonds (without warrants) ($10,000,000 x.99) Fair value of warrants (10,000 x $30) Aggregate fair value $9,900,000 Allocated to bonds: - $10,000,000 = $ 9,705,882 $10,200,000 $300,000 Allocated to warrants: - $10,000,000 = $ 294,118 $10,200,000 Total allocation $10,000,000