Illustration: Assume that Imbrigiotta'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 warrants 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. The following illustration shows the proportional allocation of the bond proceeds between the bonds and warrants. Other notes: Common stock par value = $5, Market Value is $25 i) The bonds sell at a discount. Imbrigiotta records the sale as follows. j) In addition, Imbrigiotta sells warrants that it credits to paid-in capital. It makes the following entry. I would think it would be: Cash 10,000,000 B/P 9,705,882 Premium on B/P 294,118 I get that they sell at a discount so it should be: Cash 9,705,882 Premium on B/P 294,118 B/P 10,000,000 But it says in the question that the price paid was par or $10,000,000. Why would the discount be the proportional value of the bonds instead of $9.9M?