Question

On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 102, which are due...

On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 102, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne’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, 2014, the fair value of Payne’s common stock was $35 per share and of the warrants was $2.

On May 1, 2014, Payne should credit Paid-in Capital from Stock Warrants for a. $36,560. b. $36,720. c. $37,080. d. $65,000.

On May 1, 2014, Payne should record the bonds with a a. discount of $36,000. b. premium of $10,080. c. discount of $18,720. d. premium of $27,000.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution1)-

The Correct Option is Option-b i.e. $36,720

Working-

Particulars Amount
Bonds($900,000*1.02) $918,000
No.of Warrants Issued($900,000/$1000par value)*20 Warrants $18,000
Fair Value of Warrant(18000*2) $36,000
Fair market value of convertible debt with out warrants($900,000*0.96) $864,000
Total Fair Value $900,000
Additional Paid-up Capital (36,000/900,000)*918,000 $36,720

2)-

The Correct Option Is Option-C i.e. $18,720

Particulars Amount
Face Value of bonds $900,000
Receipts Allocated to Bonds (864,000/900,000)*918,000 $881,280
Discount on Issue of Bond ($900,000-881,280) $18,720
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Use the following information for questions 28 and 29. On May 1, 2014, Payne Co. issued...
Use the following information for questions 28 and 29. On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 102, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne’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, 2014, the fair value of Payne’s common stock was $35 per share and...
Testbank Multiple Choice Question 55 On May 1, 2021, Marigold Corp. issued $1560000 of 6% bonds...
Testbank Multiple Choice Question 55 On May 1, 2021, Marigold Corp. issued $1560000 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 Marigold’s common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 95. On May 1, 2021, the fair value of Marigold’s common stock was $35 per share and of the warrants was...
During 2016, Dima Co. issued eight hundred, $1,000 bonds due in ten years at 104. One...
During 2016, Dima Co. issued eight hundred, $1,000 bonds due in ten years at 104. One detachable stock warrant entitling the holder to purchase 15 shares of Dima’s common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as...
1.   On August 1, 2022, United Corporation issued $6 million of 8% convertible bonds at 102....
1.   On August 1, 2022, United Corporation issued $6 million of 8% convertible bonds at 102. The bonds mature in 20 years. Each $1,000 bond was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $30, one share of United no par common stock. On August 1, 2022, the market value per share for United stock was $33 and the market value of each warrant was $3. In March 2028, when United common stock...
Multiple Choice Question 51 On December 1, 2018, Vaughn Manufacturing issued at 102, 690 of its...
Multiple Choice Question 51 On December 1, 2018, Vaughn Manufacturing issued at 102, 690 of its 7%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Vaughn's common stock. On December 1, 2018, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as...
1. Anteater Company issued 100 bonds, each with a face amount of $1,000, with detachable stock...
1. Anteater Company issued 100 bonds, each with a face amount of $1,000, with detachable stock warrants at 101. Each warrant entitled its holder to acquire one share of $100 par common stock for $120 per share. Through discussion with investment bankers, it is determined that the bonds would sell for 97 without the warrants. The market value of each warrant is $50. Instructions: a. Record the issuance of the bonds. b. Record the subsequent exercise of all of the...
On March 1, 2017, Atlas Corporation issued $1,000,000 of 8% nonconvertable bonds at 105, which are...
On March 1, 2017, Atlas Corporation issued $1,000,000 of 8% nonconvertable bonds at 105, which are due on February 28, 2037. In addition, each $1,000 bond was issued with 20 detachable warrants, each of which entitled the bondholder to purchase for $50 one share of Atlas common stock, par value $25. The bonds without the warrants would normally sell at 96. On March 1, 2017, the fair value of Atlas' common stock was $40 per share and the fair value...
1. Pharoah Corporation issued 1,500 $1,000 bonds at 101. Each bond was issued with one detachable...
1. Pharoah Corporation issued 1,500 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 97. The market price of the warrants without the bonds cannot be determined. Use the incremental method to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter...
On January 1, 2020, Slug Corporation issued $5.3 million of 10%, 10-year convertible bonds at 102....
On January 1, 2020, Slug Corporation issued $5.3 million of 10%, 10-year convertible bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of $1 par common stock. Fuzz Company purchased 40% of the issue as an investment. On July 1, 2024, Fuzz converted all of its bonds into common stock of Slug. The market price per share for Slug was $25 at the time of the conversion. Both...
On June 1, 2019 Adelphi Corporation issued $415,000 of 6%, 5-year bonds.  The bonds which were issued...
On June 1, 2019 Adelphi Corporation issued $415,000 of 6%, 5-year bonds.  The bonds which were issued at 105, pay interest on January 1 and June 1. Use this information to calculate the amount of bond discount or premium that is amortized with each interest payment. If this is discount amortization enter as a positive number. If this is premium amortization enter as a negative number. Your answer: On December 31, 2018, Adelphi Corporation has outstanding 1,000 shares of $100 par...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT