Barker Industries issued $5,000,000 of bonds at 104.Each bond contains 20 detachable stock warrants that allow the bondholder to purchase a share of Barker's common stock for $50.Immediately after the issue,the warrants were selling for $4 each and the bonds without the warrants were selling for $1,010.How much will be credited to Paid-in Capital-Stock Warrants?

Question

Quizplus · Accepted Answer

The first step is to calculate the allocation of proceeds:
Bond proceeds = $5,000,000 x 104% = $5,200,000
Value of warrants = 20 warrants/bond x $4/warrant x 5,000 bonds = $400,000

The next step is to allocate the proceeds to the bond and warrant components. This can be done using the proportional method:
Bond value = $1,010/bond x 5,000 bonds = $5,050,000
Warrant value = $150,000 ($5,200,000 - $5,050,000)

Finally, the warrant value is credited to Paid-in Capital-Stock Warrants:
Paid-in Capital-Stock Warrants = Number of warrants x Value per warrant = 20 warrants/bond x $4/warrant x 5,000 bonds = $400,000
However, the warrant value was already allocated above, so we need to subtract that amount from the total:
Paid-in Capital-Stock Warrants = $400,000 - $150,000 = $250,000.
Therefore, the correct answer is C) $381,651.

Barker Industries Issued $5,000,000 of Bonds at 104