During 2010, Gordon Company issued three hundred $1,000 bonds at 104 (due in 10

Question

During 2010, Gordon Company issued three hundred $1,000 bonds at 104 (due in 10 years). One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity?
(Points : 4)

$0

$12,000

$12,480

$11,856

Explanation / Answer

Bond issuance price: 300,000 x 1.04 = 312,000 Fair market value of bonds without warrants: 300,000 x 96% = 288,000 Fair market value of warrants: 300 x 40 = 12,000 Total fair market value = 300,000 Allocated to bonds (288,000 / 300,000) x 312,000 = 299,520 Allocated to warrants (12,000 / 300,000) x 312,000 = 12,480 At issuance, the bonds would be recorded as: Dr Cash 312,000 Dr Discount on Bonds Payable 480 Cr Paid-In Capital--Stock Warrants 12,480 Cr Bonds Payable 300,000 The Paid-In Capital amount of $12,480 will be reported in Cartel's Stockholders' Equity

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