Exhibit 14-8 Yoho Corp. issued $500,000 of its ten-year 6% bonds at 104. Each $1,000 bond carries ten warrants. Each warrant allows the holder to purchase one share of $10 par common stock for $50. Following the sale, relevant market values were:
-Refer to Exhibit 14-8. After a total of 4,000 warrants were exercised, the remaining warrants expired. The entry to record the expiration of the warrants would include a credit to Additional Paid-in Capital from Expired Warrants for
A) $26,000
B) $13,000
C) $52,000
D) $65,000

Question

Exhibit 14-8 Yoho Corp. issued $500,000 of its ten-year 6% bonds at 104. Each $1,000 bond carries ten warrants. Each warrant allows the holder to purchase one share of $10 par common stock for $50. Following the sale, relevant market values were:  
-Refer to Exhibit 14-8. After a total of 4,000 warrants were exercised, the remaining warrants expired. The entry to record the expiration of the warrants would include a credit to Additional Paid-in Capital from Expired Warrants for
A) $26,000 
B) $13,000 
C) $52,000 
D) $65,000

Quizplus · Accepted Answer

The total number of warrants issued with the bonds is 10 warrants per $1,000 bond, so the total number of warrants issued is: 10 warrants/bond x 500 bonds = 5,000 warrants
After 4,000 warrants are exercised, there are 1,000 warrants remaining. The amount of proceeds received from exercising the warrants is: 4,000 warrants x $50/warrant = $200,000
The total amount of additional paid-in capital from the bond issuance is calculated as follows: 
$500,000 issuance x 104% = $520,000 
$520,000 bond proceeds - $500,000 face value of bonds = $20,000 additional paid-in capital from bond issuance 
The total amount of additional paid-in capital from the warrants exercise is calculated as follows: 
4,000 warrants exercised x ($50 exercise price - $10 par value) = $160,000 additional paid-in capital from warrants 
Therefore, the remaining additional paid-in capital from expired warrants is: 
$20,000 additional paid-in capital from bond issuance - $160,000 additional paid-in capital from warrants exercised = -$140,000
The negative balance indicates that there is no additional paid-in capital remaining from expired warrants. The entry to record the expiration of the warrants would not include a credit to Additional Paid-in Capital from Expired Warrants.