uestion: A company enters into a complex financial transaction involving the issuance of convertible bonds with detachable stock purchase warrants. As part of this transaction, the company receives cash upfront from investors and agrees to issue convertible bonds that can be converted into the company's common stock at the investors' option. Additionally, the investors receive detachable stock purchase warrants that allow them to purchase additional shares of the company's common stock at a predetermined price within a specified period. How should the company account for the issuance of convertible bonds and the detachable stock purchase warrants in its financial statements? A) Treat the convertible bonds as a liability and the detachable warrants as equity, recognizing the cash received as a long-term liability. B) Treat the entire transaction as equity, recognizing the cash received as additional paid-in capital. C) Separate the convertible bonds and detachable warrants, accounting for the bonds as a liability and the warrants as equity, recognizing the cash received as a combination of long-term liability and additional paid-in capital. D) Treat the entire transaction as a deferred revenue, recognizing the cash received as a liability until the warrants are exercised, and then reclassifying it as equity.
Question: A company enters into a complex financial transaction involving the issuance of convertible bonds with detachable stock purchase warrants. As part of this transaction, the company receives cash upfront from investors and agrees to issue convertible bonds that can be converted into the company's common stock at the investors' option. Additionally, the investors receive detachable stock purchase warrants that allow them to purchase additional shares of the company's common stock at a predetermined price within a specified period. How should the company account for the issuance of convertible bonds and the detachable stock purchase warrants in its financial statements?
A) Treat the convertible bonds as a liability and the detachable warrants as equity, recognizing the cash received as a long-term liability.
B) Treat the entire transaction as equity, recognizing the cash received as additional paid-in capital.
C) Separate the convertible bonds and detachable warrants, accounting for the bonds as a liability and the warrants as equity, recognizing the cash received as a combination of long-term liability and additional paid-in capital.
D) Treat the entire transaction as a deferred revenue, recognizing the cash received as a liability until the warrants are exercised, and then reclassifying it as equity.
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