On December 20, 2018, Ball Corporation purchased 30,000 shares of Pencil Company's shares at P100 each and classified them as trading securities at the time of acquisition. On December 31, 2018, Pencil Company's shares are selling at P125 per share. On February 1, 2019, Ball received 30,000 rights entitling it to purchase at P130 per share one additional share of Pencil for each 10 shares then held. On that date, Pencil's shares had a market value of P145 and each right had a market value of P5.00 on the date of issue. Required: a.) How much should the share rights be recorded on February 1, if it is accounted for separately? b) If all the rights are exercised, how much should be recorded as the total cost of the new investment through the exercise of share rights?

On December 20, 2018, Ball Corporation purchased 30,000 shares of Pencil Company's shares at P100 each and classified them as trading securities at the time of acquisition. On December 31, 2018, Pencil Company's shares are selling at P125 per share. On February 1, 2019, Ball received 30,000 rights entitling it to purchase at P130 per share one additional share of Pencil for each 10 shares then held. On that date, Pencil's shares had a market value of P145 and each right had a market value of P5.00 on the date of issue. Required: a.) How much should the share rights be recorded on February 1, if it is accounted for separately? b) If all the rights are exercised, how much should be recorded as the total cost of the new investment through the exercise of share rights?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 26E

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