Question

On March 1, 2021, Bullet Company issued $18 million of 10% bonds at 103, due on February 28, 2031. Each $1,000 bond was issued with 38 detachable stock warrants, each of which entitled the holder to purchase, for $50, one share of Bullet's no par common stock. On March 1, 2021, the market price of each warrant was $5. By what amount should the bond issue proceeds increase shareholders’ equity?

Answer 1

$342,000

Step-by-step explanation:

No market value is given for the bonds, the amount attributable to the warrants (shareholders' equity) is :

$5 each × 38 warrants per bond

= $190 × 1,800 bonds = $342,000

Thereforet the bond issue proceeds would increase shareholders’ equity by $342,000