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How niagara should allocate the proceeds

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Reference no: EM132575794

On September 30, 2018, Pennsylvania Co. issued $3 million of 10%, 10-year convertible bonds maturing on September 30, 2028, with semi-annual coupon payments on March 31 and September 30. Each $1,000 bond can be converted into 80 no par value common shares. In addition, each bond included 20 detachable common stock warrants with an exercise price of $20 each. Immediately after issuance, the warrants traded at $5 each on the open market. Gross proceeds on issuance were $4.6 million (including accrued interest). Without the warrants and conversion features the bond would be expected to yield 6% annually. Pennsylvania's year-end is December 31.

On February 22, 2021, warrant holders exercised one-half of the warrants. The shares of Pennsylvania traded at $44 each on this day.

Required:

Question a) Determine how Niagara should allocate the $4,600,000 proceeds into its components.

Question b) Prepare the journal entries for fiscal year 2018.

Question c) Record the journal entry for the exercise of stock warrants on February 22, 2021.

Reference no: EM132575794

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