Answer:
Cash 540,000
Paid-in Capital—Stock Warrants $86,400
Common Stock $360,000
Paid-in Capital in Excess of Par—Common Stock 273,600
Explanation:
The Key to this Question is:
Although the right to purchase the common stock was exercised October 31, 2018. Since the warrant has already been issued July 1, 2018, the 36,000 rights exercised will be calculated and valuated based on prevailing prices on July 1, 2018.
Hence, the Par Value = $10, the purchase price allowed by warrant = $15 and the Market price of the rights to use $2.40
Step 1: Calculate the Cash Amount Received from the exercise of the 36,000 rights
= 36,000 Shares (exercised on October 31, 2018) x $15 ( the Warrant right to purchase common Stock)
= 36,000 x $15
=$540,000 (this is the amount paid for the 36,000 rights exercised)
Step 2: Calculate the Paid in Capital
a. Paid in Capital- Stock Warrants- based on the Market Price of Rights on July 1, 2018
= 36,000 x $2.40 (Market Price of the rights on July 1, 2018)
= $86,400 (This is the value of the 36,000 shares purchased based on the prevailing market price @ July 1, 2018)
b. Calculate Paid in Capital based on the Issued warrant's Par value of One Share of Common Stock when the warrant was issued
= 36, 000 x $10
= $360,000
c. Calculate the Paid-in Capital in Excess of Par—Common Stock
= $360,000 - $86,000
=$273,600 (This is the difference between the par value on July 1, 2018 when the rights were issued and the market price of the rights on that same date).
In summary:
Cash 540,000
Paid-in Capital—Stock Warrants $86,400
Common Stock $360,000
Paid-in Capital in Excess of Par—Common Stock 273,600
