Answered: When an entity issued bonds payable…

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?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter7: Financial Activities

Section: Chapter Questions

Problem 8QE

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Question

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.

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