Question

Westside Co. issued "preemptive rights" to its existing shareholders without consideration whereby each shareholder is offered the opportunity to buy a % of any new shares issued equal to the % of shares he/she owns at the time. When Westside issues the rights, how will it affect common stock and additional paid-in capital?

Answer 1

When a company issues preemptive rights, it allows existing shareholders the opportunity to buy new shares without payment. The issuance of preemptive rights does not directly affect common stock or additional paid-in capital.

Step-by-step explanation:

When a company issues preemptive rights to its existing shareholders, it is allowing them the opportunity to buy a percentage of any new shares issued that is equal to the percentage of shares they currently own, without consideration or payment.

When the company issues these preemptive rights, it does not directly affect common stock or additional paid-in capital. Common stock represents the ownership interest in the company, while additional paid-in capital represents the amount shareholders have contributed above the par value of the stock. The preemptive rights do not change the number or value of existing shares, so the common stock and additional paid-in capital remain the same.