On April 1, 2021, Austere Corporation issued $350,000 of 10% bonds at 107. Each $1,000 bond was sold with 40 detachable stock warrants, each permitting the investor to purchase one share of common stock for $17. On that date, the market value of the common stock was $15 per share and the market value of each warrant was $2. Austere should record what amount of the proceeds from the bond issue as an increase in liabilities?
Multiple Choice
$271,000.
$0.
$346,500.
$471,800.
Solution:
Proceed from issue of bond = $350,000*107% = $374,500
Fair value of warrant issued = 350*40*$2 = $28,000
Austere should record amount of the proceeds from the bond issue as an increase in liabilities = $374,500 - $28,000 = $346,500
Hence 3rd option is correct.
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