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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 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.