Use the following information for questions 59 and 60.
On May 1, 2014, Marly Co. issued $1,500,000 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 Marly'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 Marly's common stock was $35 per share and of the warrants was $2.
-On May 1, 2014, Marly should credit Paid-in Capital from Stock Warrants for

Question

Quizplus · Accepted Answer

The correct answer is calculated by first determining the value of the bonds and the warrants separately, then allocating the proceeds from the bond issuance between them based on their relative fair values. The bonds were issued at 103% of their face value, so the total proceeds from the bond issuance are $1,500,000 * 103% = $1,545,000. The bonds without the warrants would sell at 96%, indicating that the value attributed to the bonds alone is $1,500,000 * 96% = $1,440,000. The fair value of the warrants is given as $2 each, and with 20 warrants per $1,000 bond, the total fair value of the warrants is $2 * 20 * 1,500 = $60,000. The total fair value of the bonds and warrants together is $1,440,000 (bonds) + $60,000 (warrants) = $1,500,000, which matches the face value of the bonds. However, since the proceeds from the issuance are $1,545,000, we need to allocate this amount between the bonds and the warrants based on their relative fair values.The allocation to the warrants (and thus to Paid-in Capital from Stock Warrants) is calculated as follows: ($60,000 / $1,500,000) * $1,545,000 = $61,800. This represents the portion of the proceeds attributable to the warrants, and therefore, Marly should credit Paid-in Capital from Stock Warrants for $61,800.

Use the Following Information for Questions 59 and 60