Bond with Detachable Warrants Accounting
Our visitor Collin asked the following question:
“Will this type of question appear? LOS doesn’t seems to want us to calculate, not sure if I would want to spend the remaining week to learn new stuff. Thanks!
BPI issued a 5 year, 4% coupon, $100,000 par value bond with 2000 attached warrants. Each warrant had a $5 market value at issuance and is convertible to an exercise price of $17 into 1 BPI common share ($10 par value). At the time the warrants were exercised, the market value of a common share was $ 24. Which if the following statements is accurate with respect to the accounting for these bonds at the time of exercise?
A. Bond discount is debited $10,000 B. Common Stock is credited $10,000 C. Additional paid in capital is credited $48,000.
Ans: A ” Our Editor thinks it’s A but shoud be credited instead of debited. What do you think?
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