Question

On January 2, MLK Corp. issued $10 million of 8% bonds at 104. Each $1,000 bond is accompanied by 25 stock warrants. Each warrant permits the holder to purchase one share of no-par common stock for $20. Immediately after issuance, the warrants were listed on the stock exchange for $2 each. MLK should recognize equity from the sale of bonds of

Answer 1

$2,750,000

Step-by-step explanation:

Calculation to determine what MLK should recognize equity from the sale of bonds

Based on the information given since , half of the warrants were exercised which means that the equity will be calculated as:

Equity={[($10million/$1,000)/2]*25}*($20+$2)

Equity=[(10,000/2)*25]*$22

Equity=(5,000*25)*$22

Equity=125,000*$22

Equity=$2,750,000

Therefore MLK should recognize equity from the sale of bonds of $2,750,000