Question

Bonds can be issued with detachable warrants. When this occurs, how should the cash received at the issuance be accounted for: Multiple Choice All of the proceeds are allocated to the bonds. The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative face values. A nominal amount is allocated to the warrants. The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values.

Answer 1

The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values.

Step-by-step explanation:

Bonds are securities issued by the company where investor can invest in such securities and can earn interest.

Warrants are rights which states that on redemption of bonds it shall be converted into company's shares.

When bonds are issued with detachable warrants, that means there is a basic amount of bonds and warrants. Also, each shall be accounted separately.

Bond issue of these bonds includes value of bonds that shall be accounted and added to value of bonds, and the value of warrants shall be accounted in warrants.