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Journal Entries for Share Rights

An investor held 10,000 shares that were acquired at a total cost of $1,800,000. The company issued rights to subscribe to new shares at $150 per share in a 1 for 5 ratio. The investor would receive 2,000 new shares for exercising their rights. The document provides journal entries to record the original investment, rights received, exercise of rights for new shares, sale of rights, and expiration of any remaining rights.

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137 views9 pages

Journal Entries for Share Rights

An investor held 10,000 shares that were acquired at a total cost of $1,800,000. The company issued rights to subscribe to new shares at $150 per share in a 1 for 5 ratio. The investor would receive 2,000 new shares for exercising their rights. The document provides journal entries to record the original investment, rights received, exercise of rights for new shares, sale of rights, and expiration of any remaining rights.

Uploaded by

one dev onli
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Problem 16-4

Viable Company Issued rights to subscribe to new share at P150 per


share in the ratio of one new share for every five rights held. The share
has market value of P190 and the right has a market value of P10.

An Investor held 10,000 shares acquired at a total cost of P1,800,000.


The share rights are accounted for separately.

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
Required:
1. Prepare journal entry to record the acquisition of the original investment.
2. How many rights will the investor receive?
3. What is the initial measurements of the rights?
4. What is the journal entry to record rights?
5. What is the journal entry to record the acquisition of new investment
through exercise of rights?
6. What is the journal entry to record the sale of the rights at P15 each?
7. What is the journal entry to record the expiration of rights?

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
1. Prepare journal entry to record the
acquisition of the original investment.

Investment in Shares 1,800,000


Cash 1,800,000
#

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
2. How many rights will the investor
receive?
10,000 rights

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
3. What is the initial measurements of
the rights?
10,000 x 10 = 100,000

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
4. What is the journal entry to
record rights?

Share Rights 100,000


Investment in Shares 100,000
#

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
5. What is the journal entry to record the acquisition
of new investment through exercise of rights?

Investment in Shares 400,000


Cash (10,000/5=2,000x150) 300,000
Share Rights 100,000
#

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
6. What is the journal entry to record
the sale of the rights at P15 each?

Cash (10,000 x 15) 150,000


Share Rights 100,000
Gain on Sale of Share Rights 50,000
#

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
7. What is the journal entry to
record the expiration of rights?

Loss on Share Rights 100,000


Share Rights 100,000
#

This study source was downloaded by 100000858547024 from [Link] on 12-06-2022 04:21:01 GMT -06:00
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