25.The following information is the same as the previous question. A Company issued a bond payable...

25.The following information is the same as the previous question.

A Company issued a bond payable with detachable warrants on the interest payment date 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

1 warrant = 1 share of $1 par value stock

What is the credit to additional paid in capital at the time the warrants are exercised on June 30, 20X1?

Expert Solution

Fair value of the bonds after issuance	$390,000
Fair value of the warrants after issuance	40000
(400502)
Total	$430,000

Proceeds allocated between bonds and warrants

Bonds (390000/430000*414000)	$375,488
Warrants (40000/430000*414000)	$38,512
	$414,000

At the time of issuance
Additional paid Iin capital-warrants Cr	$38,512

Now when warrants are exercised
Exercised=5000*15	75000
Common stock (5000*1)	5000

entry is
	Dr	Cr
Cash	75000
Additional paid Iin capital-warrants	$38,512
Common stock		5000
Additional paid in capital (bal fig)		$108,512

Answer is $108512 additional paid in capital at the time the warrants are exercised on June 30,

If any doubt please comment

ekkarill92 answered 6 months ago

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