Question

In 2025 , Oriole Company issued six hundred, $1000 bonds due in ten years at 104 . One detachable stock warrant entitling the holder to purchase 15 shares of Oriole's common stock was attached to each bond. At the date of issuance, the market value of the bonds without the warrants was quoted at 96 . The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Oriole's stockholders' equity?

Answer 1

Oriole Company should account for the proceeds from the issuance as part of its stockholders' equity due to the detachable stock warrants.

Step-by-step explanation:

Oriole Company should account for the proceeds from the issuance as part of its stockholders' equity. The bonds were issued with detachable stock warrants, which entitle the holder to purchase shares of Oriole's common stock. The market value of each warrant was quoted at $40. Since the warrants are attached to the bonds, the proceeds from the issuance should be accounted for as part of the stockholders' equity because the warrants represent an ownership interest in the company.