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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.
d. premium of $9,000.

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Solution Summary

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

Solution Preview

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

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