Red Co. owned 50,000 shares of another Blue Co.. These 50,000 shares were originally purchased for P100 per share. The investee distributed 50,000 rights to Red Co.. Red Co. was entitled to buy one new share for P140 and five of these rights. Each share had a market value of P150 and each right had market value of P10 on the date of issuance. Red Co. exercised all rights. The share rights are accounted for separately and measured initially at fair value. What total cost should be recorded for the new shares that are acquired by exercising the rights? The answer is 1900000. Explain how you can arrive at this answer.
Red Co. owned 50,000 shares of another Blue Co.. These 50,000 shares were originally purchased for P100 per share. The investee distributed 50,000 rights to Red Co.. Red Co. was entitled to buy one new share for P140 and five of these rights. Each share had a market value of P150 and each right had market value of P10 on the date of issuance. Red Co. exercised all rights. The share rights are accounted for separately and measured initially at fair value. What total cost should be recorded for the new shares that are acquired by exercising the rights? The answer is 1900000. Explain how you can arrive at this answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Red Co. owned 50,000 shares of another Blue Co.. These 50,000 shares were originally purchased for P100 per share. The investee distributed 50,000 rights to Red Co.. Red Co. was entitled to buy one new share for P140 and five of these rights. Each share had a market value of P150 and each right had market value of P10 on the date of issuance. Red Co. exercised all rights. The share rights are accounted for separately and measured initially at fair value. What total cost should be recorded for the new shares that are acquired by exercising the rights?
The answer is 1900000.
Explain how you can arrive at this answer.
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