Infinity Company issued 2,000 of its $1,000 par value bonds for $1,450, providing total cash proceeds of $2,900,000. It sold each bond with 40 warrants. Each warrant provides the holder with the right to acquire one share of the company's $2 par value, common stock for $25 per share. ABC Company has existing bonds outstanding that trade without warrants at $1,200. Other ABC Company warrants outstanding trade for $25 each. Complete the following: 1. Calculate the allocation of the proceeds between bond and detachable warrants. (Allocation between debt and equity) 2. Prepare the Journal Entry of the issuance of bonds with Stocks Warrants. (together) (Using the Proportional Method if the warrants are detachable). 3. Prepare the Journal Entry for the exercise of stock warrants.
Added by Raul L.
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To calculate the allocation of the proceeds between the bond and detachable warrants, we need to determine the fair value of each component. The existing bonds without warrants are trading at $1,200. Since the new bonds include 40 warrants, we can allocate a Show more…
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A Company issued a bond payable with detachable warrants on January 1, 20X1 as follows. Bond payable ($1,000 par value; 400 bonds) $400,000 Coupon rate 4.70% Bond issue price $414,000 Fair value of the bonds after issuance $390,000 Term 10 years Number of detachable warrants per bond 50 Fair value of the warrants after issuance $2.00 Stock purchase price $15.00 Warrants exercised 5,000 Required: 1 warrant = 1 share of $1 par value stock 1) What is the interest expense in 20X1? 2) What is the credit to additional paid in capital at the time the warrants are exercised on June 30, 20X1?
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Sheffield Corp. issued at a premium of $11,300 a $190,000 bond issue convertible into 4,700 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4,000, the market value of the bonds is $210,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? $107,300 $120,000 $96,000 $100,000 11. When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair value of the warrants, the excess should be credited to additional paid-in capital from stock warrants. premium on bonds payable. retained earnings. a liability account.
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