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19 October, 17:18

Boyd Corp. issued $1,500,000 of 9% nonconvertible bonds at 107, due in 10 years. Each $1,000 bond was issued with 45 detachable stock warrants, each of which entitled the holder to purchase, for $70, one share of Boyd's $40 par common stock. The market price of each warrant was $7. How much of the proceeds should be allocated to the warrants issued?

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  1. 19 October, 17:33
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    Cash 1.605.000‬‬ debit

    Discount on Bonds payable 279,480 debit

    Bonds payable 1,500,000 credit

    Warrant on stock 384,480‬ credit

    Explanation:

    cash proceeds:

    1,500,000 x 107/100 =

    bond par value $1,000

    warrants 45 x $7 = $315

    Total $1,315

    Issued at 107 which is 1,000 x 107/100 = 1,070

    bonds issued: 1,500,000 / 1,000 = 1,500

    bonds payable: 1,070 x 1,000/1,315 = 813,68 x 1,500

    discount on bonds: 1,000 - 813,68 = 186,32‬ x 1,500

    stock warrants 1.070x315/1,315=256,31 x 1,500
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