Question

On March 4, 2017, Evan Co. purchased 1,000 shares of LVC common stock at $80 per share. On September 26, 2017, Evan received 1,000 stock rights to purchase an additional 1,000 shares at $90 per share. The stock rights had an expiration date of February 1, 2018. On September 30, 2017, LVC's common stock had a market value, exrights, of $95 per share and the stock rights had a market value of $5 each. What amount should Evan report on its September 30, 2017, Balance Sheet for investment in stock rights

Answer 1

Answer:

$4,000

Explanation:

The original stock investment cost is allocated to the stock and the rights based on their relative market values.

Total market value of the stock is $95,000 and of the rights is $5,000.

The original cost of the stock is $80,000.

Thus the investment in stock rights is reported at [$5,000/($5,000 + $95,000)]$80,000 = $4,000.