On May 1, 2014, Marly Co. issued $1,500,000 of 7% bonds at 103, which are due on
ID: 2415612 • Letter: O
Question
On May 1, 2014, Marly Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly’s common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Marly’s common stock was $35 per share and of the warrants was $2. On May 1, 2014, Marly should credit Paid-in Capital from Stock Warrants for
$57,600
$105,000
$60,000
$61,800
Please provide calculation for the answer and also a detail explanation
Explanation / Answer
No. of bonds issued = $1500000/1000 = 1500
Detachable stock warrants = 20
Fair value of the warrant = $2
Value of stock warrants = 1500 x 20 x 2 = $60000
Value of bonds issued = 1500000/100 * 103 = $1545000
The amount for which Marly should credit Paid-in Capital from Stock Warrants
= (60000/1500000) x 1545000 = $61800
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