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 allocation of the proceeds to bonds using the proportional method was:

Question

Quizplus · Accepted Answer

Total proceeds = $100,000 x 104/100 = $104,000
Value of warrants per bond = 10 x $5 = $50
Value of bond per bond = ($1,000 - $50) = $950
Total value of bonds = $950 x 100 = $95,000
Total value of warrants = $50 x 100 = $5,000
Allocation of proceeds to bonds = ($95,000/$100,000) x $104,000 = $99,185. Therefore, the best answer is B.

JMR LtdIssued $100,000 of 8%,8 Year,non-Convertible Bond with Detachable Stock Purchase