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Determine the increase in share premium issuance

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Question - On January 1, 2020, a corporation issued 3,000 P1,000 10% 7-year bonds at 110. Interest is payable annually every December 31. As of this date, the prevailing market rate of interest for similar bonds is 12%.

Each P1,000 bond comes with 20 nondetachable share warrants, which allows the bondholder to purchase, for each warrant, 2 ordinary shares having a par value of P15, for P20.

Effective interest rate of bonds without share warrants is 11%, while the share warrants can be sold for P10 each.

Determine the increase in share premium issuance if 40% of the share warrants were exercised on December 31, 2021.

Reference no: EM132982559

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