Reference no: EM131268151
On July 4, 2014, Chen Company issued for $8,400,000 a total of 80,000 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 $8,200,000. The market price of the rights on July 1, 2014, was $2.50 per right. On October 31, 2014, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 32,000 rights were exercised. As a result of the exercise of the 32,000 rights and the issuance of the related common stock, what journal entry would Chen make? Please provide a detailed explanation (especially as to where the various amounts come from).
a. Cash........................................................................................ 480,000
Common Stock ............................................................ 320,000
Paid-in Capital in Excess of Par ..................................... 160,000
b. Cash........................................................................................ 480,000
Paid-in Capital—Stock Warrants ............................................... 80,000
Common Stock ............................................................ 320,000
Paid-in Capital in Excess of Par ..................................... 240,000
c. Cash........................................................................................ 480,000
Paid-in Capital—Stock Warrants ............................................... 200,000
Common Stock ............................................................ 320,000
Paid-in Capital in Excess of Par ..................................... 360,000
d. Cash........................................................................................ 480,000
Paid-in Capital—Stock Warrants ............................................... 120,000
Common Stock ............................................................ 320,000
Paid-in Capital in Excess of Par ..................................... 280,000
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