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:

Direct Cost

Expenses that can be directly traced to the production of specific goods or services, such as materials and labor.

Scooter Manufacturer

A company engaged in the design, production, and sale of scooters, encompassing activities from sourcing materials to assembling finished products.

Office Rent

Office rent refers to the cost incurred for leasing or renting a space used for business operations or as a company's administrative headquarters.

Direct Materials

Raw materials that are directly attributable to the production process and are part of the finished product.