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# Bonds with detachable warrants

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On May 1, 2007, Logan Co. issued \$300,000 of 7% bonds at 103, which are due on April 30, 2017. Twenty detachable stock warrants entitling the holder to purchase for \$40 one share of Logan'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, 2007, the fair value of Logan's common stock was \$35 per share and of the warrants was \$2.

6. On May 1, 2007, Logan should credit Paid-in Capital from Stock Warrants for

a. \$11,520.
b. \$12,000.
c. \$12,360.
d. \$21,000.

7. On May 1, 2007, Logan should record the bonds with a

a. discount of \$12,000.
b. discount of \$3,360.
c. discount of \$3,000.

#### Solution Preview

Using the proportional method
The value of bonds is 300,000X0.96 = 288,000
Value of warrants is 20X300X2 = 12,000 ( 20 ...

#### Solution Summary

The solution explains how to calculate the value of bonds and the detachable warrants when bonds are issued with detachable warrants.

\$2.19