Accounting > EXAM > ACC 308 6-1 Homework Chapter 14 (All)

ACC 308 6-1 Homework Chapter 14

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3. RE. 14-11 Bonds with Detachable Warrants Langdon & Co. issues bonds with a face value of $50,000 for $51,000. Each $1,000 the bond carries 10 warrants, and each warrant allows the holder to acqu... ire one share of $1 par common stock for $40 per share. Immediately after the issuance, the bonds are quoted at 99 ex-rights, and the warrants are quoted at $5 each. Calculate the value to be assigned to the bonds and to the warrants. Round your answers to two decimal places. The value assigned to bonds $48,548.08 The value assigned to warrants $2451.92 Feedback You should allocate a portion of the proceeds of bonds issued with detachable warrants to the stock warrants. The allocation is made as follows : Amount Assigned to Bonds = Market Value of Bonds Without Warrants Market Value of Bonds Without Warrants + Market Value of Warrants X Issuance Price Amount Assigned to Warrants = Market Value of Warrants Market Value of Bonds Without Warrants + Market Value of Warrants X Issuance Price Amount Assigned to Bonds + Amount Assigned to Warrants = Issuance Price Market Value of bonds Without Warrant = ($1000 x 99%) x $50,000/$1000 $49,500.00 Market Value of bonds With Warrant ($5 x $50000/$1000 x 10) $2,500.00 Issuance Price $51,000.00 Value assigned to bonds = (MV of Bonds without warrant /MV of Bonds Without Warrant + MV of Bonds With warrant) x Issue price Value assigned to bonds = ($49,500/($49500 + 2500)) x $51000 $48,548.08 Value assigned to Warrant = (MV of Bonds warrant /MV of Bonds Without Warrant + MV of Bonds With warrant) x Issue price Value assigned to Warrant = ($2500/($49500 + 2500)) x $51000 $2,451.92 [Show More]

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