18. On March 1, 2016, E Corp. issued $1,500,000 of 9% nonconvertible bonds at 10
ID: 2499956 • Letter: 1
Question
18.
On March 1, 2016, E Corp. issued $1,500,000 of 9% nonconvertible bonds at 107, due on February 28, 2026. Each $1,000 bond was issued with 45 detachable stock warrants, each of which entitled the holder to purchase, for $70, one share of Evan's $40 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?
a) $0
b) $484,500
c) $105,000
d) $472,500
20. On January 1, 2011, F Corp. issued 2,900 of its 10%, $1,000 bonds for $2,994,000. These bonds were to mature on January 1, 2021, but were callable at 101 any time after December 31, 2014. Interest was payable semiannually on July 1 and January 1. On July 1, 2016, F called all of the bonds and retired them. The bond premium was amortized on a straight-line basis. Before income taxes, F Corp.'s gain or loss in 2016 on this early extinguishment of debt was:
a) $22,700 gain
b) $29,000 loss
c) $13,300 gain
d) $76,000 gain
On March 1, 2016, E Corp. issued $1,500,000 of 9% nonconvertible bonds at 107, due on February 28, 2026. Each $1,000 bond was issued with 45 detachable stock warrants, each of which entitled the holder to purchase, for $70, one share of Evan's $40 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?
a) $0
b) $484,500
c) $105,000
d) $472,500
20. On January 1, 2011, F Corp. issued 2,900 of its 10%, $1,000 bonds for $2,994,000. These bonds were to mature on January 1, 2021, but were callable at 101 any time after December 31, 2014. Interest was payable semiannually on July 1 and January 1. On July 1, 2016, F called all of the bonds and retired them. The bond premium was amortized on a straight-line basis. Before income taxes, F Corp.'s gain or loss in 2016 on this early extinguishment of debt was:
a) $22,700 gain
b) $29,000 loss
c) $13,300 gain
d) $76,000 gain
Explanation / Answer
1)
Increase in shareholders’ equity:
= ($1,500,000/$1,000)×45×$7 = $472,500.
Paid in capital – share warrants outstanding = $472,500.
Therefore, the correct answer is option D.
Note: Please ask one question at a time.
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