006 Bonds with Detachable Warrants

Question 1

How should the issuance of bonds with detachable warrants be recorded when only one market value is known?

Answer 1

Proceeds equal to the fair market value are allocated to that security, and the incremental proceeds are allocated to the remaining security.

Question 2

How should the issuance of bonds with detachable warrants be recorded when the market value of both are known?

Answer 2

Proceeds are allocated to eachissue based on the respective fair market values of the securities.

Question 3

How should bonds with detachable warrants be accounted for after issuance?

Answer 3

Unaffected by warrants; amortize premium or discount.

Question 4

What is the purpose of detachable stock warrants?

Answer 4

To increase marketability of bond issue.

Question 5

How should the exercise of detachable warrants be accounted for?

Answer 5

Debit cash for exercise price, debit detachable warrants, credit common stock and additional paid in capital (APIC).