Stockholder's Equity

Question 1

If a bond is issued with a non-detachable stock warrant, explain the accounting treatment.

Answer 1

Non-detachable stock warrants will not use paid-in-capital account-stock warrants because they do not have a determinable market value, and thus cannot be allocated to separate accounts. The entire amount is allocated as a bond payable.

Question 2

What are the steps to eliminate a deficit in retained earnings?

Answer 2

1. Write-down the assets to fair value. Credit the asset involved and debit retained earnings.
2. Reduce the par value of the stock and transfer the excess of the reduction of par value to APIC. Debit C/S and credit APIC.
3. Credit retained earnings and debit APIC.