Use the following information for questions 55 and 56.
On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Payne's common stock was $35 per share and of the warrants was $2.
-On May 1, 2014, Payne should credit Paid-in Capital from Stock Warrants for

Question

Quizplus · Accepted Answer

First, calculate the proceeds of the bonds without the warrants:
$900,000 × 96% = $864,000
Next, calculate the value of the warrants:
20 warrants × $2 fair value per warrant = $40 value of warrants per bond
$40 value of warrants / $1,000 face value of bond = 4% allocation rate
Allocated value of the warrants = $900,000 face value of bonds × 4% allocation rate = $36,000
The total amount credited to Paid-in Capital from Stock Warrants is the fair value of the warrants minus the allocated value of the warrants:
$36,000 fair value of the warrants – $920 per bond allocated value of the warrants ($40 × 20 warrants ÷ 1,000 face value of the bond) = $35,080 total credit to Paid-in Capital from Stock Warrants
Therefore, the best answer is C.

Use the Following Information for Questions 55 and 56