On April 1, 2018, Austin Corporation issued $300,000 of 10% bonds at 105. Each $1,000 bond...

On April 1, 2018, Austin Corporation issued $300,000 of 10% bonds at 105. Each $1,000 bond was sold with 25 detachable stock warrants, each permitting the investor to purchase one share of common stock for $17. On that date, the market value of the common stock was $15 per share and the market value of each warrant was $2. Austin should record what amount of the proceeds from the bond issue as an increase in liabilities? clear steps and formulas please

Solutions

Expert Solution

· No of bonds issued = 300000 / 100 = 3000
· Issue price of bond = 3000 * 105

= 3, 15,000

· Total no of detachable stock warrant = 300000 * 25/1000 = 7,500

· MV of warrant = 7500* 2 = 15,000
· Liability of bond to be reported = Issue price of bond – Value of warrants

= 3, 15,000 – 15,000

= 3, 00,000

ekkarill92 answered 1 year ago

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