Items 1 to 4 are based on the following information. On December 31, 2020, Fuslie Company issued P5,000,000 face amount, 5-year bonds at 109. Each P1,000 bond was issued with 10 share warrants, each of which entitled the bondholder to purchase one share of P100 par value at P120. Immediately after issuance, the market value of each warrant was P5. The stated interest rate on the bonds is 11% payable annually, every December 31. However, the prevailing market rate of interest for similar bonds without warrants is 12%. Note: Round-off present value factors to two (2) decimal places.
Items 1 to 4 are based on the following information. On December 31, 2020, Fuslie Company issued P5,000,000 face amount, 5-year bonds at 109. Each P1,000 bond was issued with 10 share warrants, each of which entitled the bondholder to purchase one share of P100 par value at P120. Immediately after issuance, the market value of each warrant was P5. The stated interest rate on the bonds is 11% payable annually, every December 31. However, the prevailing market rate of interest for similar bonds without warrants is 12%. Note: Round-off present value factors to two (2) decimal places.
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter10: Long-term Liabilities
Section: Chapter Questions
Problem 10.1AP
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Question
3. What is the equity component arising from the issuance of bonds payable?
A. 450,000
B. 500,000
C. 620,000
D. 0
E. None of the above
Transcribed Image Text:Items 1 to 4 are based on the following information.
On December 31, 2020, Fuslie Company issued P5,000,000 face amount, 5-year bonds at 109. Each P1,000 bond
was issued with 10 share warrants, each of which entitled the bondholder to purchase one share of P100 par value
at P120. Immediately after issuance, the market value of each warrant was P5.
The stated interest rate on the bonds is 11% payable annually, every December 31. However, the prevailing
market rate of interest for similar bonds without warrants is 12%.
Note: Round-off present value factors to two (2) decimal places.
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