When the cash proceeds from a bond issued with detachable stock warrants exceeds the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to: a

When the cash proceeds from a bond issued with detachable stock warrants exceeds the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to

a. additional paid-in capital from stock warrants.
b. retained earnings.
c. a liability account.
d. premium on bonds payable.

Answer: a.

The problem does not mention the fair market value of the bond. Therefore, I assume that the bond is issued at par value. Thus, there is no premium on bonds payable.

Use the following information for questions 10 and 11

Presented below is information related to Fehr Corporation:

Common Stock, $1 par $2,600,000
Paid-in Capital in Excess of Par?Common Stock 330,000
Preferred 8 1/2% Stock, $50 par 1,200,000
Paid-in Capital in Excess of Par?Preferred Stock 240,000
Retained Earnings 900,000
Treasury Common Stock (at cost) 90,000

The total stockholders' equity of Fehr Corporation is

a. $5,180,000
b. $5,270,000
c. $5,300,000
d. $5,510,000

Answer: a.

You have to sum all and subtract the treasury common stock out.

Common Stock, $1 par $2,600,000
Paid-in Capital in Excess of Par?Common Stock 330,000
Preferred 8 1/2% Stock, $50 par 1,200,000
Paid-in Capital in Excess of Par?Preferred Stock 40,000
Retained Earnings 900,000
Total 5,270,000
Less: Treasury Common Stock (at cost) 90,000
Total Stockholders' equity 5,180,000

The total paid-in capital (cash collected) related to the common stock is

a. $3,050,000
b. $2,930,000
c. $3,170,000
d. $2,810,000

Answer: b

The total amount that Fehr Corporation will receive from the common stock is

Common Stock, $1 par $2,600,000
Paid-in Capital in Excess of Par?Common Stock 330,000
Total $2,930,000