ACCT 3044 - Convertible and Warrants

Convertible bonds are usually converted into:

• common stock.

• stock warrants.

• other bonds at a lower interest rate.

• preferred stock.

Nondetachable warrants

• are only sold with a bond

• do not require an allocation of the proceeds between the bonds and the warrants

• Can be sold separately from bonds

• requires allocation of the proceeds between the bonds and the warrants

The proceeds from the sale of debt with detachable stock warrants should be allocated between the two securities based on the:

• fair market value of the bonds.

• face value of the bonds and market value of the warrants.

• face value of the bonds.

• aggregate fair market value of the bonds and the warrants.

For which of the following securities is an allocation of the sales proceeds necessary?

• Convertible bonds.

• Bonds issued with nondetachable warrants.

• Bonds issued with detachable warrants.

• Bonds issued with either detachable or nondetachable warrants.

The conversion of preferred stock is most commonly recorded by the

• par value method.

• book value method.

• market value method.

• incremental method.