Problem 1

Adam company owned 50,000 ordinary shares of Bland company. These 50,000 shares were
purchased by Adam for P120 per share.
On August 30, Bland distributed 50,000 share rights to Adam. Adam was entitled to buy one
share of Bland Company for P90 cash and two of these rights.
On August 30, each share had a market value of P130 and each right had a market value of P20.
What total cost should be recorded for the new shares that are acquired by exercising the rights?
Solution: Initial cost of rights (50,000 x 20) 1,000,000
Cash paid for new shares (25,000 x 90) 2,250,000
Total cost of new shares 3,250,000
Entries: Investment in shares (50, 000 x 120) 6,000,000
Cash 6,00,000
Share rights (50,000 x 20) 1,000,000
Investment in shares 1,000,000
Investment in shares 3,250,000
Cash (25,000 x 90) 25,000 x 20) 2,250,000
Share rights (50,000 x 20) 1,00,000
Problem 2
Excelsia Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100.
Jealina Company owns 50,000 shares of Excelsia Company with total cost of P5,000,000. The
share is quoted right-on at 125.
What is the cost of the new investment if all of the stock rights are exercised by the investor?
Solution:
Theoretical value of right (125-100/4+1) 5.00
Initial cost of rights (50,000 x 5) 250,000
Cash paid for the new shares (50,000/4 = 12,000 x 100) 1,250,000
Cost of new investment 1,500,000
Entries: Investment in shares (50,00 x 100) 5,000,000
Cash 5,000,000
Share rights (50,000 x 5) 250,000
Investment in shares 250,000
Investment in shares 1,500,000
Cash 12.5 x 100 250,000
Share rights 50,000 x 5 250,000
Problem 3
An examination of the general ledger account of Hope Company discloses the following trading
securities.
Jan 10. Purchased 5,000 shares of Piltel common @20 per share
March 19. Purchased 2,000 of ABS_CBN common @18 per share
Oct 5. Purchased additional 2,000 shares of Piltel common
Nov. 4 Sold 2,000 share rights

Additional info:
1. The company received stock right from Piltel Company when the market value of Piltel
common stock and rights were P19 and P1 respectively. Each rights entitles the holder to
acquire 1 additional share of common stock for Pf18 per share on or before Dec. 31, 2019
2. The company exercised its right to acquire 2,000 additional Piltel common shares on Oct.
5,2019
3. On Nov. 4, Hope company sold 2,000 stock rights @ P1.50 each
4. At the end of the year, shares were quoted in the stock exchange as follows:
Piltel company P 18
ABS CBN p14
Questions:
1. Ending balance per audit of Piltel common at year-end is? 126,000
2. Ending balance per audit of ABS-CBN common at year end? 28,000
3. Ending balance of investment at year-end is? 163,000
4. Allowance for market decline of investment is? 9,000
5. Gain or loss on stock rights transaction is? 0
6. Stock rights at Dec. 31 2020? 0
 Investment- PIltel 100,000
Jan 10. 5,000 shares @ P20
Cash 100,000

March15. 2,000 shares @ P15 Investment-Abs-CBN 30, 000

Cash 30,000

Oct 5 2,000 shares @ P18 Investment-Piltel 36, 000

Cash 36,000

Nov 4 2,000 shares sold Cash 3,000

Investment- HOPE 3,000

Additional information:
1.) Stock rights (1/20 *100,000) 5,000
Investment-Piltel 5,000
2.) Investment-Piltel 36,000
Cash 36,000
Investment-Piltel 38,000
Cash 36,000
Stock rights 2,000
Investment-Piltel 2,000
Stock rights 2,000
3.) Cash 3,000
Investment-Piltel 3,000
Cash 3,000
Stock rights 2,000
Gain on sale 1,000
Investment 3,000
Stock rights 2,000
Gain on sale 1,000
4.) Loss on market decline 9,000
Allowance for market decline 9,000
Market value Cost
Piltel 18 * 7,000 126,000
133,000
ABS-CBN 28,000
30,000
 154,000 (9,000)
163,000
5.) Loss on stock rights 1,000
Stock rights 1,000