Question

On December 1, 2010, Lester Company issued at 103, two hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2010, the market value
of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be
A) $193,640.
B) $195,700.
C) $200,000.
D) $206,000.

Answer 1

Answer:

B) $195,700.

Explanation:

issued at 103 of 1,000:

200 bonds x $ 1,000 x 103/100 = 206,000

Nopw we solve lie this was an acquisition under lump sum, we have to weight each concept market value and apply it agaisnt the actual proceeds:

$\left[\begin{array}{cccc}Item&Value&Weight&Allocated\\ Bonds&190000&0.95&195700\\ Warrants&10000&0.05&10300\\&&&\\ Total&200000&1&206000\\\end{array}\right]$

190,000 / 200,000 = 0.95

10,000 / 200,000 = 0.05

Then we multiply this by the 206,000 proceeds.