How would exercise of warrants that were part of an original compound instrument be recorded?
A)Common stock is recorded at an amount equal to the fair value of the options at date of conversion.
B)Common stock is recorded at an amount equal to the cash received plus the contributed surplus initially recorded.
C)Common stock is recorded at an amount equal to the market price of the shares on conversion date.
D)Common stock is recorded at an amount equal to the price determined by the Black-Sholes model.

Question

Quizplus · Accepted Answer

When warrants that were part of an original compound instrument are exercised, common stock is recorded at an amount equal to the cash received plus the contributed surplus initially recorded. This approach reflects the actual consideration received by the company (cash) and the value attributed to the warrants when they were initially issued (contributed surplus).

How Would Exercise of Warrants That Were Part of an Original