Question

How are nondetachable warrants treated?

a) Recorded as equity
b) Separately traded in the market
c) Treated as a liability
d) Expensed immediately

Answer 1

Nondetachable warrants are recorded as equity in a company's financial statements. They cannot be separately traded in the market.

Step-by-step explanation:

Nondetachable warrants are recorded as equity in a company's financial statements. These warrants give the holder the option to purchase additional shares of stock at a specific price within a certain time frame. By recording them as equity, the company acknowledges that these warrants represent potential ownership in the company.

For example, if a company issues 1,000,000 shares of common stock and also issues warrants for an additional 100,000 shares, both the common stock and the warrants would be recorded in the equity section of the balance sheet.

In contrast to detachable warrants, which can be separated and traded independently of the underlying stock, nondetachable warrants cannot be separately traded in the market. They are typically issued as part of a larger security and cannot be detached or sold separately.