Barkley, Inc.sold $30, 000 of 8% bonds for $40, 200.Each $1, 000 bond carried eight rights and each right allowed the holder to acquire one share of $10 par stock for $16 a share.After the issuance of the securities, the bonds were quoted at 104 and the rights were quoted at $4 each.Later, one-half of the rights were exercised.At date of exercise, how much should be credited to Additional Paid-in Capital?

Question

Quizplus · Accepted Answer

The total number of rights is 240 (30 bonds * 8 rights per bond). Half of these rights, or 120, were exercised. Each right allows the purchase of one share at $16, so 120 shares are purchased at $16 each, totaling $1,920. The par value of the shares is $10, so the par value for 120 shares is $1,200. The excess over par value, which is credited to Additional Paid-in Capital, is $1,920 - $1,200 = $720.