Question

A company issued rights to its existing shareholders without consideration. The rights allowed the recipients to purchase unissued common stock for an amount in excess of par value. When the rights are issued, which of the following accounts will be increased?
a. Common Stockb. Additional PIC

Answer 1

Answer:

Both Common Stock and Additional Paid-In Capital in Excess of Par Value

Explanation:

The entries for rights issue will affect both accounts because:

1. The  purchase of the common stock will increase the Common stock account

2. Additional Paid-in capital will be increased because it is noted in the question that the recipients of the rights issue are given the purchase of the common stock 'in excess of par value'. The excess amount will be credited to the additional PIC