Question

On April 1, 2020,, Austere Corporation issued $300,000 of 10% bonds at 105. Each $1,000 bond was sold with 25 detachable stock warrants, each permitting the investor to purchase one share of common stock for $17. On that date, the market value of the common stock was $15 per share and the market value of each warrant was $2. Austere should record what amount of the proceeds from the bond issue as an increase in liabilities

Answer 1

$300,000

Step-by-step explanation:

Austere Corporation

Austere Corporation issued $300,000÷ $1,000 bond = $300

$300 x 25 detachable stock warrants = $7,500

7,500 x market value of each warrant was $2= $15,000

$300,000 x bond of 1.05 = $315,000

Hence;

$315,000 – $15,000

= $300,000

Therefore Austere should record $300,000 of the proceeds from the bond issue as an increase in liabilities