q5 How should the issue price of the bonds with non-detachable share warrants be accounted for? A. The proceeds are fully assigned to the bonds. B. the proceeds shall ne assigned first to the warrants, at their market value and the remained to the bonds. C. The proceeds shall be assigned first to the bonds at their market value if sold without he warrants; then the remained of the issue price is assigned to the warrants as part of equity. D. The proceeds shall be allocated to the bonds and to the warrants based on the relative fair values

q5 How should the issue price of the bonds with non-detachable share warrants be accounted for? A. The proceeds are fully assigned to the bonds. B. the proceeds shall ne assigned first to the warrants, at their market value and the remained to the bonds. C. The proceeds shall be assigned first to the bonds at their market value if sold without he warrants; then the remained of the issue price is assigned to the warrants as part of equity. D. The proceeds shall be allocated to the bonds and to the warrants based on the relative fair values

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles

Section: Chapter Questions

Problem 5Q

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q8 The proceeds from a bond issued with detachable share warrants should be accounted forA. entirely as bonds payableB. entirely as shareholders’ equityC. partly as unearned revenue and partly as bonds payableD. partly as liability for bonds payable and partly as shareholders’ equity for the warrants.
How shall the equity component of a bonds payable issued with share warrants be valued? a.)issue price less the market value of the bonds warrants-on b.)fair value of the share warrants c.)issue price less the market value of the bonds ex-warrants d.)allocation of the issue price basing on the fair value of both bonds and share warrants
1. When an entity issued bonds payable with detachable share warrants, how will share premium be computed if the share warrants are exercised by the bondholders? (Choose an answer and explain why) a. It is the balance of the share warrants outstanding. b. It is the sum of the share warrants outstanding and total par or stated value of the shares issued. c. It is the difference between the proceeds received based on the exercise price and the total par or stated value of the shares issued. d. It is the difference between the proceeds received based on the exercise price plus the share warrants outstanding and the total par or stated value of the shares issued.
12. All of the following statements regarding available-for-sale debt securities are true, except for a. premiums and discounts are amortizedb. interest revenue may be debited at the time of acquisitionc. the securities will be valued using the lower of cost or market methodd. realized gain or loss is the difference between the amortized cost of the bonds and theproceeds from their sale
3. Which type of bonds give the holder the right to exchange the bonds at some stage in the future into ordinary shares according to some prearranged formula? A. Convertible Bonds B. Mezzanine Bonds C. High Yield Junk Bonds D. Redeemable Bonds
Q19 Which of the following statements are correct regarding interest component in the purchase price of bonds? (i) The fair value of a bond purchased cum-interest is the quoted price of the bond on the bond market. (ii) The fair value of a bond purchased cum-interest is the quoted price of the bond on the bond market less interest portion in the bond price (iii) The fair value of a bond purchased cum-interest is the quoted price on the bond market. (iv) The dividend component has no influence in the accounting treatment of the investment in the bonds. Select one: a. (i), (ii) and (iii) only b. (i), (ii), (iii) and (iv) c. (ii) only d. (i) and (iv) only
7. What amount is credited to share premium if all of the share warrants are exercised? A. 4,350,000 B. 3,750,000 C. 4,150,000 D. 0 E. None of the above
4. Investments in debt securities include all of the following, except for a. U.S. treasury securitiesb. corporate bondsc. preferred stocks that are redeemable at the option of the issuerd. commercial paper
Q2) State whether the following statements are true or false: Bond represents a hybrid debt instrument whereas preferred stock is ownership rights. Ahmed bought a bond with OMR (1000) par value at OMR (950), which means a market interest rate is greater than the coupon rate of the bond. One use of the cost of capital is to design a firm’s equity policy. Efficient Market Hypothesis means Securities are normally in equilibrium and are “fairly priced. The market is IN equilibrium when the required rate of return larger than the dividend growth rate.
When the cash proceeds from a bond issued with detachable stock purchase warrants exceed the sum of the par value of the bonds and the fair value of the warrants, the excess should be credited to:a. Additional Paid-in Capitalb. Retained Earningsc. Premium on Bonds Payabled. Detachable Stock Warrants Outstanding
PLEASE KINDLY ANSWER. 26. What is the issue price of the bonds without warrants?27. What is the equity component upon initial recognition?
(c) Re-calculate the prices of the bonds if the required return falls to 9%.(d) Explain how underwriters use the overallotment option in IPOs.