1

On May 1, 2014, a company issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of the company's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of the company's common stock was $35 per share and of the warrants was $2. On May 1, 2014, the company should credit Paid-in Capital from Stock Warrants for

$ 60,000

$ 61,800

none of these answers are correct

$105,000

$ 57,600

2

The accounting for compensation expense related to stock options depends on the accounting method used. Under the intrinsic value method, compensation expense resulting from an incentive stock option is

allocated to the periods benefited by the employee's required service.

none of these answers are correct

recognized in the period of exercise.

recognized in the period of the grant.

not recognized if the market price does not exceed the option price at the date of grant.

3

Companies often issue detachable warrants with their bonds to make the bonds more attractive to investors. From an accounting perspective, when the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to

additional paid-in capital from stock warrants.

discount on bonds payable.

retained earnings.

none of these answers are correct

a liability account.