What amount should be recorded as increase in equity

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Reference no: EM132824005

Question - An entity issued P5,000,000 face amount 5-year bonds at 120. Each P1,000 bond was issued with 20 non-detachable share warrants. Each warrant entitled the bondholder to purchase one share of P20 par value for P25. Immediately after issuance, the market value of each warrant was P5. The interest rate is 11% payable annually every December 31. The prevailing market rate of interest for similar bonds without warrants is 12%.

The PV of 1 at 12% for 5 periods is 0.57 and the PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60.

What amount should be recorded as increase in equity as a result of the bond issuance?

a. 1,170,000

b. 2,000,000

c. 1,000,000

d. 0

Reference no: EM132824005

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