Reference no: EM133070228

Question - On July 1, 2021, Queen Company purchased for P2,400,000 50,000 newly issued 6% cumulative P20 par value preference shares. Each preference share had one share warrant attached which entitled the holder to acquire at P15 one ordinary share of P10 par value for each two warrants held.

The market price on this date of the preference share without warrant was P50 and the market price of the share warrant was P10. On December 1, 2021, all the share warrants wre sold for P700,000.

1. What amount should be recorded as cost of the investment in preference shares?

a. 2,400,000 b. 2,000,000 C. 1,200,000 d. 1,000,000

2. What amount should be recognized as gain on sale of warrants?

a. 300,000 b. 700,000 c. 400,000 d. 0