On January 1, 2021, Watermelon Company issued 3,000 of its 10%, 5-year P1,000 face value bonds with detachable warrants at 110. Each bond carried a detachable warrant to acquire five shares of Watermelon Company's P50 par value ordinary shares at a specified option price of P60 per share. At the date of issuance, the market value of the bonds ex-warrant amounted to P2,500,000 and the market value of the warrants were ascertained to be at P500,000. On December 31, 2021, two-thirds of the total bondholders exercised the warrants. During this time, the bonds had a fair value of P2,800,000 without the warrant and the fair value of the entity's shares amounted to P90 per share. 1. How much of the proceeds from the issuance should be allocated to the equity component? 2. How much is the net increase in total shareholders' equity as a result of the exercise of the warrants? 3. Prepare the pertinent journal entries on the bonds with warrants.

On January 1, 2021, Watermelon Company issued 3,000 of its 10%, 5-year P1,000 face value bonds with detachable warrants at 110. Each bond carried a detachable warrant to acquire five shares of Watermelon Company's P50 par value ordinary shares at a specified option price of P60 per share. At the date of issuance, the market value of the bonds ex-warrant amounted to P2,500,000 and the market value of the warrants were ascertained to be at P500,000. On December 31, 2021, two-thirds of the total bondholders exercised the warrants. During this time, the bonds had a fair value of P2,800,000 without the warrant and the fair value of the entity's shares amounted to P90 per share. 1. How much of the proceeds from the issuance should be allocated to the equity component? 2. How much is the net increase in total shareholders' equity as a result of the exercise of the warrants? 3. Prepare the pertinent journal entries on the bonds with warrants.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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