Question

On December 1, 2021, Sheridan Company issued 770 of its 9%, $1,000 bonds at 102. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Sheridan's common stock. On December 1, 2021, 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. $770000.
B. $785400.
C. $738276
D. $746130.

Answer 1

The cash received on the issue of the bond 785,400
`$=770 * 1000 * 102\%$`

The bond market value without warrant 731,500
`$=770* 1000 * 95\%$`

Bond total par value 770,000
`$=770* 1000$`

The initial carrying value of the bon payable $ 746,130
`$=(731,500 * 785,400)/(770,000)$`

Thus the initial carrying would be = $ 746,130