Question

On December 1, 2018, Marigold Corp. issued at 102, 750 of its 7%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Marigold's common stock. On December 1, 2018, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50.

The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be _______.

Answer 1

$726,750

Step-by-step explanation:

According to the given problem,

Bonds issued at 103% of the face value.

Face value of the bonds = $1000

Coupon rate = 7%

Number of bonds issued = 750

The data indicates that each bond is issued with a separate stock warrant which has a market value of $50.

However the question was provided that the value of the proceeds from issuing the bonds should be found.

At 102 per cent of the bond's face value, each bond is issued.

Request bond price along with stock warrant.

= 102% ($1000) = $1020

Total number of bonds = 750

Proceeds from the issuance of total number of bonds

= 750 * $1020 = $765 000

The value of the proceeds from issuing the bonds therefore is $765 000.

You deduct the $50 stock purchase warrant at 102 per cent initial market value.

50 * 1.03 = 51

51*750 = 38250

$765,000 - $38,250 = $72,6750