JMR Ltd.issued $100,000 of 8%, 8 year, non-convertible bond with detachable stock purchase warrants.KER Corp.purchased the entire issue.Each $1,000 bond carries 10 warrants.Each warrant entitles KER to purchase one common share for $20.The bond issue sells for 104 exclusive of accrued interest.Shortly after issuance, the warrants trade for $5 each and the bonds were quoted at 103 ex-warrants.The market value of the bonds and warrants using the proportional method was:

Question

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The proportional method allocates the proceeds based on the relative market values of the bonds and warrants. The bonds are quoted at 103% of $100,000, which is $103,000. The warrants are valued at $5 each, with 1,000 warrants (10 per bond for 100 bonds), totaling $5,000. The total market value is $103,000 + $5,000 = $108,000.

JMR LtdIssued $100,000 of 8%, 8 Year, Non-Convertible Bond with Detachable