# Good warrants question

On March 31, 20X1, ABC Company issued 5,000 warrants at a price of \$3 per warrant. Each warrant gives the purchaser the right to buy one share of common stock (\$1 par value) for \$20. Assuming that the warrants are exercised on September 30, 20X1, what is the impact of cash and paid-in capital at the time of issuance and at the time the warrants are exercised? At issuance: Increase cash - \$15,000 Additional paid-in capital - no effect At Exercise: Increase cash - \$100,000 Increase add’tl paid-in capital - \$100,000 Is this correct or not? If yes, explain. If no, provide alternative answer.

Additional paid in capital is what is paid by the investor above a security’s par value. Since par is \$1 per share and the warrant is exercised @\$20, your additional paid in per share is \$19.

Nope.

Dreary I’ll try and take a stab at this one: Issuance Dr Cash 15000 Cr Common Stock Warrants 15000 Exercise: Dr Common Stock Warrants 15000 Dr Addl. Paid In Capital 85000 (Plug) Cr Cash 100000 (5000 * 20) CP

Skill checker only. But cpk123, you should not credit cash at excercise, because you are increasing cash, not reducing it. Same thing with additional piad-in (up not down). But anyway the answer is along the same lines as cpk123, and it is: At issuance: Increase cash - \$15,000 Additional paid-in capital - no effect At Exercise: Increase cash - \$100,000 Increase add’tl paid-in capital - \$110,000 And the details of this is as follows: At issuance: Cash 15k warrants 15k At Exercise: Cash 100k warrants 15k Common stock 5k Addl. Paid In Capital 110k (to make both sides = \$115k).