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What is the market price of the bond ex-warrant

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At the beginning of the current year, Stanley Company issued P10,000,000 of 12% nonconvertible bonds at 104 which are due on 5 years.
In addition, each 1,000 bonds was issued 30 share warrants, each of which entitled with bondholder to purchase for P50, one ordinary share of Stanley Company, par value P25. Interest is payable annually every end of the year.

  • On the date of issuance, the market value of the share was P40 and the market value of the warrant is P4.
  • The market rate of interest for similar bonds ex-warrants is 14%. The present value of 1 at 14% for 5 periods is 0.52 and the present value of an ordinary annuity of 1 at 14% for 5 periods is 3.43.

Problem A. What is the market price of the bond ex-warrant?

Problem B. What is the equity component arising from the issuance of the bonds payable?

Problem C. What is the journal entry to record the issuance of bonds?

Problem D. What is the entry if all share warrants are exercised?

Reference no: EM132833955

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