On December 31, 2019, Armada Company issued 5,000,000 face amount, 5 year bonds at 109. Each 1,000 bond was issued with 10 share warrants, each of which entitled the bondholder to purchase one share of 100 par value at 120. Immediately after issuance, the market value of each warrant was 5. The stated interest rate on the bonds is 11% payable annually every December. However the prevailing market rate of interest for similar bonds without warrants is 12%. The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60. Prepare the entry to record the exercise of the warrants.
On December 31, 2019, Armada Company issued 5,000,000 face amount, 5 year bonds at 109. Each 1,000 bond was issued with 10 share warrants, each of which entitled the bondholder to purchase one share of 100 par value at 120. Immediately after issuance, the market value of each warrant was 5. The stated interest rate on the bonds is 11% payable annually every December. However the prevailing market rate of interest for similar bonds without warrants is 12%. The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60. Prepare the entry to record the exercise of the warrants.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On December 31, 2019, Armada Company issued 5,000,000 face amount, 5 year bonds at 109. Each 1,000 bond was issued with 10 share warrants, each of which entitled the bondholder to purchase one share of 100 par value at 120. Immediately after issuance, the market value of each warrant was 5.
The stated interest rate on the bonds is 11% payable annually every December. However the prevailing market rate of interest for similar bonds without warrants is 12%.
The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60.
Prepare the entry to record the exercise of the warrants.
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