Quick question on detachable warrants

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    Topic
  • #190175
    OnMyWay732
    Participant

    Hi, looking for some quick help. Have FAR on Saturday.

    In the example in Becker on p54 for Bonds, the example has bonds with detachable warrants. You can convert 1 bond + cash in exchange for 1 common stock. When you get into the bond its

    Debit Cash

    Debit Discount on Bond

    Credit Bond Payble

    Credit APIC – warrants

    that’s understandable.

    Upon conversion, they show the following:

    Debit Cash

    Debit APIC – Warrants

    Credit Common Stock

    Credit APIC (the difference)

    On the second entry, why would you debit cash and credit common stock? Aren’t you reducing your cash amount and gaining common stock? I would think those 2 should be reversed.

    Appreciate the help.

    AUD - July 2014 - 76
    REG - August 2014 - 82
    FAR - November 2014 - 78
    BEC - January 2015 - 81

    DONE!!!!

    Used Becker online. Who needs a text when you can burn your eyes out staring at the screen for months on end?

    "Let me tell you something you already know. The world ain't all sunshine and rainbows. It is a very mean and nasty place and it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain't how hard you're hit; it's about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That's how winning is done!"

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  • #618947
    MrCPA511
    Participant

    It's a debit to cash because they are receiving cash during the conversion. It's a credit to common stock because they are issuing common stock due to the conversion.

    FAR - 86 7/2014
    AUD - 95 10/2014
    REG - 87 1/22/15
    BEC - 84 7/2015

    #618948
    OnMyWay732
    Participant

    Oh wow…i definitely drew a blank before I typed this. Makes complete sense. For some reason I forgot the borrower is the one issuing stock.

    Thanks for your help.

    AUD - July 2014 - 76
    REG - August 2014 - 82
    FAR - November 2014 - 78
    BEC - January 2015 - 81

    DONE!!!!

    Used Becker online. Who needs a text when you can burn your eyes out staring at the screen for months on end?

    "Let me tell you something you already know. The world ain't all sunshine and rainbows. It is a very mean and nasty place and it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain't how hard you're hit; it's about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That's how winning is done!"

Viewing 2 replies - 1 through 2 (of 2 total)
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