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On march 1, 2018, big brands corporation issued $600,000 of 10% bonds at 105. each $1,000 bond was sold with 50 detachable stock warrants, each permitting the investor to purchase one share of common stock for $35. on that date, the market value of the common stock was $30 per share and the market value of each warrant was $4. big brands should record what amount of the proceeds from the bond issue as an increase in liabilities?

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Answer:

$510,000

Explanation:

No.of bonds issued = $600,000 / $1000 = 600

Total no. of stock warrants = 600 x 50 = 30,000

Market Value of stock warrants = 30,000 x $4 = $120,000

Issue price of bonds = $600,000 x 1.05 = $630,000

Amount to be recorded as increase in liabilities = Issue price of bonds - Value of stock warrants

= $630,000 - $120,000

= $510,000

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