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
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.
Using the proportional method
The value of bonds is 300,000X0.96 = 288,000
Value of warrants is 20X300X2 = 12,000 ( 20 ...
The solution explains how to calculate the value of bonds and the detachable warrants when bonds are issued with detachable warrants.