Question

On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne'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, 2014, the fair value of Payne's common stock was $35 per share and of the warrants was $2.

On May 1, 2014, Payne should credit Paid-in Capital from Stock Warrants for
a. $34,560.
b. $36,000.
c. $37,080.
d. $63,000.

Answer 1

Paid-in Capital from Stock Warrants is a component of stockholders' equity that represents the amount received in excess of the par value when stock warrants are issued. In this case, Payne Co. issued $900,000 of 7% bonds with detachable stock warrants attached.

Step-by-step explanation:

Paid-in Capital from Stock Warrants is a component of stockholders' equity that represents the amount received in excess of the par value when stock warrants are issued. In this case, Payne Co. issued $900,000 of 7% bonds with detachable stock warrants attached. To calculate the amount to be credited to Paid-in Capital from Stock Warrants, we need to determine the fair value of the warrants. We are given that the fair value of the warrants on May 1, 2014, was $2 each. Since each bond had twenty detachable stock warrants, the total fair value of the warrants is $40 (20 warrants x $2). Therefore, Payne should credit Paid-in Capital from Stock Warrants for $40,000 ($40 x $1,000 bonds).