On april 1, 2017, rl enterprises issued $150,000 of 8% nonconvertible bonds at 104. bonds are due on march 31, 2037. each $1,000 bond was issued with 25 detachable stock warrants entitling the bondholder to purchase one share of common stock (par value $25) for $50. on the date of issue, fair value of the stock was $40 per share and fair value of the warrants was $2. if rl's bonds sell at 95 without the warrant, how much should rl record as paid-in capital from the warrants?

a.$7,800

b.$613,500

c.$7.500

d.$15,000

Question

Business

Claire Newman

17 October, 16:41

On april 1, 2017, rl enterprises issued $150,000 of 8% nonconvertible bonds at 104. bonds are due on march 31, 2037. each $1,000 bond was issued with 25 detachable stock warrants entitling the bondholder to purchase one share of common stock (par value $25) for $50. on the date of issue, fair value of the stock was $40 per share and fair value of the warrants was $2. if rl's bonds sell at 95 without the warrant, how much should rl record as paid-in capital from the warrants?

a.$7,800

b.$613,500

c.$7.500

d.$15,000

+2

Answers (1)

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Ball · Answer 1

Solution:

Paid-in capital from warrants = (Total value of bonds * value of each bond without warrant) + (Number of bonds * warrant per bond * fair value of the warrant)

where, Number of bonds = 150000/1000 = 150

Now, putting values i the formula,

(150,000*0.95) + (150*25*2) = $150,000

150,000*1.04 = 156,000

(7500/150,000) * 156,000

= $7800

Answer: $7800