On May 1, 2018, Marly Co. issued $2,500,000 of 7% bonds at 103, which are due on

ID: 2528927 • Letter: O

Question

April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40

one share of Marly’s common stock, $15 par value, were attached to each $1,000 bond.

The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of

Marly’s common stock was $35 per share and of the warrants was $2.

On May 1, 2018, Marly should record the bonds with a

a. discount of $100,000.

b. discount of $25,000.

c. discount of $28,000.

d. premium of $75,000.

c. Discount of $28,000

2,500,000 - (2,400,000/2,500,000)*2,575,000) = $28,000

values are taken as:

2,500,0000 = Issue price

2,400,000 = 2,500,000 * 96 / 100 = Value of bonds without warrants

2,575,000 = 2,500,000 * 103 / 100 = Bonds issued with warrants

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