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Black company owned 50,000 ordinary shares which were purchased for 5 points P120 per share
Black company owned 50,000 ordinary shares which were purchased for 5 points P120 per share. During the year, the investee distributed 50,000 stock rights to the investor. The investor was entitled to buy one new share for P90 cash and two of these rights. Each share had a market value of P130 and each right had a market value of P20 on the date of issue. What amount should be debited to the investment account if the rights were not accounted for separately?
Expert Solution
Check the answer below.
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Step-by-step explanation
Market Value Of Two Rights Exercised To Acquire Each Share= Market Value Of Each Acquired Share - Cash Paid To Acquire Each Share
= P130 - P90
= P40
Number Of Shares Acquired By Exercising Existing Rights= 50,000/2
= 25,000
Cost of New Shares Acquired= 25,000*(P90+P40)
= P3,250,000
|
Particulars |
Amount |
|
Cost of New Shares Acquired |
P3,250,000 |
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