Question

1. When bonds are issued with stock purchase warrants, a portion of the proceeds should be allocated to paid-in-capital for bonds issued with

Detachable Warrants     Nondetachable Warrants

Group of answer choices

a. Yes No

b. No Yes

c. No No

d. Yes Yes

2.

On May 1, Year 1, Fox Co. issued, at 103 plus accrued interest, 500 of its 12%, $1,000 bonds, dated January 1, Year 1, which mature on January 1, Year 5. Interest is payable semiannually on January 1 and July 1. The entry to record the issuance of the bonds is:

Group of answer choices

a. Cash                                               535,000
            Interest payable                                      20,000
            Bonds payable     500,000
            Premium on bonds payable                    15,000

b. Cash                                               535,000
            Bonds payable     500,000
            Premium on bonds payable                    35,000

c. Cash                                               525,000
            Interest payable                                      10,000
            Bonds payable     500,000
            Premium on bonds payable                    15,000

d. Cash                                               515,000
Interest payable                               20,000
            Bonds payable     500,000
            Premium on bonds payable                    35,000

Answer 1

1	a. Yes No
	Explanation: Proceeds from bonds issued with detachable stock purchase warrants are allocated
	between the warrants and the bonds on the basis of their relative fair market values. Because
	detachable warrants are traded separately from the debt; so the market value detachable warrants is
	available.
2	d.
	Working
	Cash	$535,000
	($500,000 + $15,000)
	Bond payable	$500,000
	(500 x $1,000)
	Premium on bonds payable	$15,000
	($500,000 x 3%)
	Interest Payable	$20,000
	($500,000 x 12% x 4/12)