On March 1, 2014, Ruiz Corporation issued $1,500,000 of 8% nonconvertible bonds

Question

On March 1, 2014, Ruiz Corporation issued $1,500,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2034. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2014, the fair value of Ruiz’s common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2014 as paid-in capital from stock warrants?

Explanation / Answer

No. of warrants on $1000 face value of bond = 25

No. of warrants on $1500000 face value of bonds = (25/1000) x 1500000 = 37500

Paid in capital from stock warrants = 37500 x $50 = $1875000

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