On August 1, 2021, Comical Company issued rights to stockholders to subscribe to additional share of its common stock. A stockholder can buy one new share for every 5 rights plus P25 cash. The rights will expire on October 1, 2021. On July 31, 2021, the market price of a share with the right attached was P50, while the market price of the right alone was P5. Comical's equity on July 31, 2021, comprised of the following: Ordinary Shares, P10 par                       P4,000,000 Subscribed ordinary shares                    1,000,000 Share premium                                           600,000 Retained earnings                                     200,000 Treasury shares, 80,000 shares              1,750,000 What is the effect on the stockholders' equity as a result of the issuance of stock rights? 2,500,000 increase no change 500,000 increase 200,000 increase

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On August 1, 2021, Comical Company issued rights to stockholders to subscribe to additional share of its common stock. A stockholder can buy one new share for every 5 rights plus P25 cash. The rights will expire on October 1, 2021. On July 31, 2021, the market price of a share with the right attached was P50, while the market price of the right alone was P5. Comical's equity on July 31, 2021, comprised of the following:

Ordinary Shares, P10 par                       P4,000,000

Subscribed ordinary shares                    1,000,000

Share premium                                           600,000

Retained earnings                                     200,000

Treasury shares, 80,000 shares              1,750,000

What is the effect on the stockholders' equity as a result of the issuance of stock rights?

2,500,000 increase

no change

500,000 increase

200,000 increase

 

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