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On May 1, 2012, Payne Co.issued $300,000 of 7% bonds at 103, which are due on April 30, 2022.Twenty detachable share warrants entitling the holder to purchase for $40 one share of Payne's ordinary shares, $15 par value, were attached to each $1,000 bond.The bonds without the warrants would sell at 96.On May 1, 2012, the fair value of Payne's shares was $35 per share and of the warrants was $2.
-On May 1, 2012, Payne should credit Share Premium -Share Warrants for

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There are 20 detachable share warrants attached to each $1,000 bond, so for $300,000 bonds, there are a total of 6,000 warrants (20 x 300). The fair value of the warrants on May 1, 2012, was $2 per warrant, so the total value of the warrants is $12,000 (6,000 x $2). To calculate the share premium, we need to determine the intrinsic value of the warrants. Since each warrant allows the holder to purchase one share of Payne's ordinary shares, $15 par value, for $40, the intrinsic value of the warrant is $25 ($40 - $15). Therefore, the total intrinsic value of the warrants is $150,000 (6,000 x $25). The difference between the fair value and intrinsic value of the warrants is the share premium, which is $138,000 ($150,000 - $12,000). Therefore, Payne should credit Share Premium - Share Warrants for $21,000 ($138,000 / 20).

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