Exhibit 14-8 Marvin Corp.issued $500, 000 of its ten-year 6% bonds at 104.Each $1, 000 bond carries ten warrants.Each warrant allows the holder to purchase one share of $10 par common stock for $50.Following the sale, relevant market values were:
$\begin{array}{ll}
\text { Bonds } & \$ 980 \text { (ex rights) } \
\text { Warrants } & \$ 14 \text { each } \
\text { Common stock } & \$ 60 \text { each }
\end{array}$
-Refer to Exhibit 14-8.After a total of 2, 000 warrants were exercised, the remaining warrants expired.The entry to record the expiration of the warrants would include a credit to Additional Paid-in Capital from Expired Warrants for

Question

Exhibit 14-8 Marvin Corp.issued $500, 000 of its ten-year 6% bonds at 104.Each $1, 000 bond carries ten warrants.Each warrant allows the holder to purchase one share of $10 par common stock for $50.Following the sale, relevant market values were:
$\begin{array}{ll}
\text { Bonds } & \$ 980 \text { (ex rights) } \
\text { Warrants } & \$ 14 \text { each } \
\text { Common stock } & \$ 60 \text { each }
\end{array}$  
-Refer to Exhibit 14-8.After a total of 2, 000 warrants were exercised, the remaining warrants expired.The entry to record the expiration of the warrants would include a credit to Additional Paid-in Capital from Expired Warrants for

Quizplus · Accepted Answer

Each $1,000 bond carries ten warrants, so a total of 20,000 warrants were issued (2,000 bonds x 10 warrants per bond). Since each warrant allows the holder to purchase one share of $10 par common stock for $50, the exercise price of each warrant is $500 ($50 x 10).
The total exercise proceeds from the warrants would be: 2,000 warrants x $500 exercise price = $1,000,000.
Since the bonds were issued at 104, or $1,040 per bond, the total proceeds from the bond issuance would be: $500,000 x 104% = $520,000.
Therefore, the total proceeds from the bond issuance and exercise of warrants would be $520,000 + $1,000,000 = $1,520,000.
The total par value of the common stock that could be issued upon exercise of all warrants would be: 20,000 warrants x 1 share per warrant x $10 par value per share = $2,000,000.
Since only 2,000 warrants were exercised, the total par value of the common stock issued would be: 2,000 warrants x 1 share per warrant x $10 par value per share = $20,000.
The total proceeds from the exercise of the warrants ($1,000,000) exceeds the total par value of the stock issued ($20,000), so a portion of the excess should be credited to Additional Paid-in Capital from Warrants Exercised. The remaining excess should be credited to Additional Paid-in Capital from Expired Warrants.
The excess proceeds from the exercise of the warrants are: $980,000 ($1,000,000 - $20,000).
Therefore, the entry to record the expiration of the warrants would include a credit to Additional Paid-in Capital from Expired Warrants for $39,200 ($980,000 x 4%). Therefore, the answer is B.

Exhibit 14-8 Marvin Corp -Refer to Exhibit 14-8