Question

on December 1, 2021, Lester Company issued at 103, eight hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2021, 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

The initial carrying value of the bonds payable is $818,400.

Step-by-step explanation:

To determine the initial carrying value of the bonds payable, we need to calculate the portion of the proceeds that should be allocated to the bond itself, excluding the value of the attached stock warrants.

The market value of the bonds without the stock warrants is given as 95. Since the bonds were issued at 103, this indicates that the market value of the stock warrants is 8 (103 - 95).

The total proceeds from the issuance would then be $824,000 (800 x 1,000 x 103%). To calculate the initial carrying value of the bonds payable, we subtract the market value of the stock warrants (8 x 800) from the total proceeds, resulting in $818,400.

Answer 2

$489,250

Step-by-step explanation:

Market value of bonds and stock warrants

= ((500*1000*0.95)+(500*50))

= 475000+25000

= $500,000

Issue price bonds = 500000*1.03

= 515000

Carry value of bonds = ((500*1000*0.95)/500000)*515000

= (475000/500000)*515000

= $489,250