When Bonds Include Detachable Warrants, What Is the Appropriate Accounting

question 86

Multiple Choice

When bonds include detachable warrants, what is the appropriate accounting for the cash proceeds from the bond issue?

• A) The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values.
• B) The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative face values.
• C) A nominal amount is allocated to the warrants.
• D) All of the proceeds are allocated to the bonds.

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Definitions:

Straight-Line Depreciation

A method of calculating the depreciation of an asset where its cost is evenly spread across its useful life.

Initial Investments

The initial amount of money spent to start a project, purchase assets, or establish a business.

After-Tax Discount Rate

The rate of return after taxes have been calculated, used in evaluating the profitability of investment opportunities.

Income Tax Rate

The rate at which income is taxed for a person or a company.