Barley, 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 bonds were sold at a premium, but the question focuses on the rights. Each right allows the purchase of one share at $16. Half of the rights were exercised, so 120 rights (30 bonds x 8 rights x 0.5) were exercised. The par value of the stock is $10, so the excess over par is $6 per share. Therefore, the Additional Paid-in Capital is 120 rights x $6 = $720.