On 1/1/16, Edgar Corp. issued $6,500,000 in 4.5%, 15-year Bonds for a price of $6,369,734. Each...

On 1/1/16, Edgar Corp. issued $6,500,000 in 4.5%, 15-year Bonds for a price of $6,369,734. Each $1,000 (face) Bond includes 10 detachable warrants and each of the 65,000 warrants gives the holder the right to buy 1 share of Edgar’s $1 Par common stock for $42 per share. Edgar’s stock was trading at $42 per share at that time. It is estimated that the bonds would have sold for $5,521,650 without the warrants and that the initial fair value of the warrant was $14 each. What is the change in total shareholders equity, if any, as a result of recording the issuance of the bonds with detachable warrants on 1/1/16?

Expert Solution

Change in total shareholders equity, as a result of recording the issuance of the bonds with detachable warrants on 1/1/16 is as follow:

No. of Bonds = 6500000/1000 = 6500

1 bond have 10 detachable warants

Total warants = 6500 * 10 = 65000

Each of the 65,000 warrants gives the holder the right to buy 1 share of Edgar’s $1 Par common stock for $42 per share

So, Changes in equity will be 65000*42 = $2730000

jeff jeffy answered 2 years ago

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