Companies will sometimes issue bonds with detachable warrants entitling the bondholder to buy the stock of the company at a
1. Why do companies sometimes issue bonds with detachable warrants?
2. Does U. S. GAAP treat bonds with detachable warrants as debt or equity?
3. How are the proceeds of the issue allocated to the financial statement components?
Doxy, Inc. issued $ 1,000,000 par value, 5%, 10- year bonds with detachable warrants on April 1 for $ 1,100,000. ( April 1 is also the commitment date.) Interest is payable quarterly, at the end of each quarter. Doxy can reliably determine that the market rate of interest that would be applicable to the bond issue without warrants is 6%. It can also reliably determine that the fair value of the warrants, if they were detached from the bonds, would be $ 200,000.
4. Provide the journal entry to record the issuance on April 1.
5. Provide the journal entry to record the first interest payment on June 30. GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
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Question Posted: November 24, 2015 05:16:40