Eisler Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $40. Use the proportional method to record the issuance of the bonds and warrants.
Cash and discount on bonds payable are to be debited with $2,020,000 and $59,216, respectively. Bonds payable and paid-in Capital- Stock warrants will be credited with $2,000,000 and $79,216, respectively.
Bonds Payable $2,000,000
Discount on Bonds Payable $59,216 ($2,000,000 – $1,940,784)
Fair value of bonds$1,960,000 (2,000 X $1,000 X 98)
Fair value of warrants$80,000 (2,000 X $40)
Allocated to bonds$1,940,784 [($1,960/$2,040) X $2,020,000]
Allocated to warrants$79,216 [($80/$2,040) X $2,020,000]
Discount on Bonds Payable
Paid-in Capital—Stock Warrants
Being bonds are issued at discount
Fair value of bonds
Fair value of warrants
Aggregate fair value
Allocated to bonds
Allocated to warrants
Bedard Corporation reported net income of $300,000 in 2017 and had 200,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at $10 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share.
Cordero Corporation has an employee stock-purchase plan which permits all full-time employees to purchase 10 shares of common stock on the third anniversary of their employment and an additional 15 shares on each subsequent anniversary date. The purchase price is set at the market price on the date purchased and no commission is charged. Discuss whether this plan would be considered compensatory.
Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 shares of common stock immediately after an interest payment date. At that time, the market price of the debentures is 104, and the common stock is selling at $14 per share (par value $10). The company records the conversion as follows. Bonds Payable 1,000,000 Discount on Bonds Payable 40,000 Common Stock 800,000 Paid-in Capital in Excess of Par— Common Stock 160,000 Discuss the propriety of this accounting treatment.
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