C is corrent. The requirement is to determine the 6/30/Y1 carrying amount of bonds payable, which were issued with detachable stock warrants on that date. ASC Topic 470 states that the proceeds from the sale of debt with detachable stock warrants should be allocated between the separate debt and equity elements. 1,000 bonds were issued with 5 warrants each, for a total of 5,000 warrants. APIC-Stock warrants is credited for the FV of the warrants issued or $25,000 (5,000 x $5). The remaining $995,000 ($1,020,000 — $25,000) becomes the carrying value of the bonds payable. Note that if a FV is available for the bonds without the warrants, ASC Topic 470 states that the proceeds should be allocated to the bonds and the warrants based on the relative FVs at the time of issuance.
A is incorrect. ASC Topic 470 states that the proceeds from the sale of debt with detachable stock warrants should be allocated between the separate debt and equity elements. 1,000 bonds were issued with 5 warrants each, for a total of 5,000 warrants. APIC-Stock warrants is credited for the FV of the warrants issued or $25,000 (5,000 x $5). The remaining $995,000 ($1,020,000 — $25,000) becomes the carrying value of the bonds payable. Note that if a FV is available for the bonds without the warrants, ASC Topic 470 states that the proceeds should be allocated to the bonds and the warrants based on the relative FVs at the time of issuance.
A is incorrect. ASC Topic 470 states that the proceeds from the sale of debt with detachable stock warrants should be allocated between the separate debt and equity elements. 1,000 bonds were issued with 5 warrants each, for a total of 5,000 warrants. APIC-Stock warrants is credited for the FV of the warrants issued or $25,000 (5,000 x $5). The remaining $995,000 ($1,020,000 — $25,000) becomes the carrying value of the bonds payable. Note that if a FV is available for the bonds without the warrants, ASC Topic 470 states that the proceeds should be allocated to the bonds and the warrants based on the relative FVs at the time of issuance.
D is incorrect. ASC Topic 470 states that the proceeds from the sale of debt with detachable stock warrants should be allocated between the separate debt and equity elements. 1,000 bonds were issued with 5 warrants each, for a total of 5,000 warrants. APIC-Stock warrants is credited for the FV of the warrants issued or $25,000 (5,000 x $5). The remaining $995,000 ($1,020,000 — $25,000) becomes the carrying value of the bonds payable. Note that if a FV is available for the bonds without the warrants, ASC Topic 470 states that the proceeds should be allocated to the bonds and the warrants based on the relative FVs at the time of issuance.
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