Final answer:
Austere Corporation should record the proceeds from the bond issue allocated to liabilities based on the proportionate value of the bonds in relation to the detachable stock warrants. The exact amount would require the total combined market value of the bonds and warrants, which is not provided.
Step-by-step explanation:
The Austere Corporation should record the proceeds from the bond issue allocated to liabilities based on the proportionate value of the bonds themselves, separate from the value of the detachable warrants. The allocation involves a calculation based on the relative market values of the bonds and the warrants at the time of issue.
To find the amount to record as an increase in liabilities, we proceed as follows:
- Determine total proceeds: $380,000 × 105% = $399,000.
- Calculate the combined market value of the bonds and the warrants: We consider the market value of the common stock irrelevant, focusing instead on the warrant value. The bond’s face value is $380,000, and there are 30 × $3 (warrant value) × 380 (number of bonds at $1,000 each) in additional value, resulting in a combined market value of the bonds and warrants.
- Allocate the proceeds: Apportion the total proceeds ($399,000) based on the combined market value determined in step 2, attributing a proportion of the proceeds to the liability (the bonds) and another proportion to equity (the warrants).
The actual calculation would require additional information such as the exact total combined market value of the bonds and warrants. Without this, a precise direct answer cannot be provided. The calculation would involve the ratio of the bond value to the total combined value, multiplied by the total proceeds, to arrive at the liability portion.