On April 1, 2013, Austere Corporation issued $380,000 of 10% bonds at 107. Each

Question

On April 1, 2013, Austere Corporation issued $380,000 of 10% bonds at 107. Each $1,000 bond was sold with 20 detachable stock warrants, each permitting the investor to purchase one share of common stock for $16. On that date, the market value of the common stock was $13 per share and the market value of each warrant was $3. Austere should record what amount of the proceeds from the bond issue as an increase in liabilities?

On April 1, 2013, Austere Corporation issued $380,000 of 10% bonds at 107. Each $1,000 bond was sold with 20 detachable stock warrants, each permitting the investor to purchase one share of common stock for $16. On that date, the market value of the common stock was $13 per share and the market value of each warrant was $3. Austere should record what amount of the proceeds from the bond issue as an increase in liabilities?

Explanation / Answer

Total value of Bond Issue = 380,000 x 107/100 = $406,600

Less: Market Value of the Warrant: Total Warrant = 380,000 / 1,000 = 380 x 20 = 7,600 x 3 = $22,800

Net Increase in Liabilities: 406,600 - 22,800 = $383,800

So, the Correct Option is b) $383,800

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