Question

On March 1, 2018, E Corp. issued $1,400,000 of 8% nonconvertible bonds at 101, due on February 28, 2028. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitled the holder to purchase, for $65, one share of Evan's $45 par common stock. On March 1, 2018, the market price of each warrant was $3. By what amount should the bond issue proceeds increase shareholders' equity?

Answer 1

Answer:

$210,000

Explanation:

No market value was been given for the bonds.

Therefore the amount attributable to the warrants (shareholders' equity) =

Market price of each warrant was $3 ×50 detachable stock warrants per bond

=$150

Issued $1,400,000/$1,000 bond

=$1,400

Hence:

$150 × 1,400 bonds

= $210,000.

Therefore the amount that the bond should issue if proceeds increase shareholders' equity is $210,000