On March 1, 2009, E Corp. issued $1,000,000 of 10% nonconvertible bonds at 103, due on February 28, 2019. Each $1,000 bond was issued with 30 detachable stock warrants, each of which entitled the holder to purchase, for $50, one share of Evan's $25 par common stock. On March 1, 2009, the market price of each warrant was $4. By what amount should the bond issue proceeds increase shareholders' equity?

Question

Quizplus · Accepted Answer

Since the market value of the bonds is not given, we cannot calculate the total proceeds. However, we can calculate the amount attributable to the warrants, which is $4 per warrant. With 30 warrants per bond, this amounts to $120 per bond. Issuing 1,000 bonds therefore increases shareholders' equity by $120,000 (1000 x $120). The correct answer is D, $120,000.

On March 1, 2009, E Corp ×\times× 30 Warrants Per Bond = $120 1,000 Bonds = $120,000

On March 1, 2009, E Corp $\times$ 30 Warrants Per Bond = $120 1,000 Bonds = $120,000