On March 1, 2016, E Corp. issued $1,100,000 of 10% nonconvertible bonds at 107,

Question

On March 1, 2016, E Corp. issued $1,100,000 of 10% nonconvertible bonds at 107, due on February 28, 2026. Each $1,000 bond was issued with 35 detachable stock warrants, each of which entitled the holder to purchase, for $70, one share of Evan's $30 par common stock. On March 1, 2016, the market price of each warrant was $7. By what amount should the bond issue proceeds increase shareholders' equity?

$77,000.

$0.

$269,500.

$277,500.

Please explain step by step.

On March 1, 2016, E Corp. issued $1,100,000 of 10% nonconvertible bonds at 107, due on February 28, 2026. Each $1,000 bond was issued with 35 detachable stock warrants, each of which entitled the holder to purchase, for $70, one share of Evan's $30 par common stock. On March 1, 2016, the market price of each warrant was $7. By what amount should the bond issue proceeds increase shareholders' equity?

Explanation / Answer

Increase shareholders' equity = (Issued amount / Each bond price) x Detachable stock warrants x each warrant price

                                           = (1,100,000 / 1,000) x 35 x $7

                                           = ( 1,100 ) x 35 * $7

                                           = 1,100 x 245

                                           = 269,500

Therefore, correct option is 269,500

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