Question

On July 4, 2010, Chen Company issued for $4,200,000 a total of 40,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $4,100,000. The market price of the rights on July 1, 2010, was $2.50 per right. On October 31, 2010, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 16,000 rights were exercised. As a result of the exercise of the 16,000 rights and the issuance of the related common stock, what journal entry would Chen make?

a. Cash 240,000
Common Stock 160,000
Paid-in Capital in Excess of Par 80,000
b. Cash 240,000
Paid-in Capital—Stock Warrants 40,000
Common Stock 160,000
Paid-in Capital in Excess of Par 120,000
c. Cash 240,000
Paid-in Capital—Stock Warrants 100,000
Common Stock 160,000
Paid-in Capital in Excess of Par 180,000
d. Cash 240,000
Paid-in Capital—Stock Warrants 60,000
Common Stock 160,000
Paid-in Capital in Excess of Par 140,000

Answer 1

The journal entry that Chen would make as a result of the exercise of the 16,000 rights and the issuance of the related common stock would be option a. Cash $240,000, Common Stock $160,000, and Paid-in Capital in Excess of Par $80,000.

Step-by-step explanation:

The journal entry that Chen would make as a result of the exercise of the 16,000 rights and the issuance of the related common stock would be option a. Cash $240,000, Common Stock $160,000, and Paid-in Capital in Excess of Par $80,000.