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On May 1, 2021, Bramble Corp. issued $1620000 of 6% bonds at 103, which are due...

On May 1, 2021, Bramble Corp. issued $1620000 of 6% bonds at 103, which are due on April 30, 2031. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Bramble’s common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2021, the fair value of Bramble’s common stock was $35 per share and of the warrants was $2.

On May 1, 2021, Bramble should credit Paid-in Capital from Stock Warrants for

Expert Solution

Computation of the paid-in capital from stock warrants is:

Paid-in capital from stock warrants = (Value of detachable stock warrants / Value of issued bonds at par value) * Value of bonds at a premium

= ($64,800 / $1,620,000) * $1,168,600

= $46,744

Hence, the paid-in capital from stock warrants is $46,744. So, the amount is credited by $46,744.

Working Notes:

1.

Computation of the number of issued bonds is:

Number of issued bonds = Value of issued bonds at par value / Value of each bond attached

= $1,620,000 / $1,000

= 1,620 bonds

Hence, the number of issued bonds is 1,620 bonds.

2.

Computation of the value of detachable stock warrants is:

Value of detachable stock warrants = Number of issued bonds * Number of detachable stock warrants * Fair value of warrants

= 1,620 * 20 * $2

= $64,800

Hence, the value of detachable stock warrants is $64,800.

3.

Computation of the value of bonds at a premium is:

Value of bonds at a premium = (Value of issued bonds at par value / Par value of bond) * Premium value of a bond

= ($1,620,000 / $100) * $103

= $1,168,600

Hence, the value of bonds at a premium is $1,168,600.

ekkarill92 answered 1 year ago

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