question about the difference in this question

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  • #202946
    jorden_rowrow
    Participant

    I am probably not reading this right but i saw these two questions and have a question in understanding them.

    On December 31, Moss Co. issued $1,000,000 of 11% bonds at 109. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitled the bondholder to purchase one share of $5 par common stock for $25. Immediately after issuance, the market value of each warrant was $4. On December 31, what amount should Moss record as discount or premium on issuance of bonds?

    &

    On July 28, Vent Corp. sold $500,000 of 4%, eight-year subordinated debentures for $450,000. The purchasers were issued 2,000 detachable warrants, each of which was for one share of $5 par common stock at $12 per share. Shortly after issuance, the warrants sold at a market price of $10 each. What amount of discount on the debentures should Vent record at issuance?

    My question is the apic warrants. I don't need to know the answer to the question as I already know but my question is regarding the APIC warrants section. How come with the first question, you divide the face value by 1000, then you multiply by detachable warrants and then the market value but for the section question all you do is you multiply 2000 by 10? How is one question different then the other in terms of apic warrants

    #782387
    Anonymous
    Inactive

    Easy one! 🙂 Both questions require the total number of warrants issued. So in the first problem, 1,000 bonds x 50 warrants = 5,000 warrants issued. In the second, it is given that 2,000 were issued.

    #782388
    jorden_rowrow
    Participant

    O so you are saying because it said in the second problem that detachable warrants were issued that is why you didn't do 500,000/1000=500*2000 detachable warrants * 10 market value?

    #782389
    Anonymous
    Inactive

    The reason for dividing $1 mil by $1,000 (i.e. 1,000 bonds) was to determine the total warrants. Because 1 bond = 50 warrants. There's no need to do that in the second problem because the total warrants are already given.

    #782390
    jorden_rowrow
    Participant

    how can you assume that 1 bond is = 50 warrants? I believe you, i just want to be able to understand this so if i see it on the exam then I can do the problem

    #782391
    livealittle
    Participant

    it says in the problem, each bond was issued with 50 detachable stock warrants.

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