On July 1, 2006, Vail Corp. issued rights to stockholders to subscribe to additional shares of its common stock. One right was issued for each share owned. A stockholder could purchase one additional share for 10 rights plus $15 cash. The rights expired on September 30, 2006. On July 1, 2006, the market price of a share with the right attached was $40, while the market price of one right alone was $2. Vail’s stockholders’ equity on June 30, 2006, comprised the following:
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Common stock, $25 par value, 4,000 shares issued and outstanding |
$100,000 |
|
Additional paid-in capital |
60,000 |
|
Retained earnings |
80,000 |
By what amount should Vail’s retained earnings decrease as a result of issuance of the stock rights on July 1, 2006?
- $0
- $ 5,000
- $ 8,000
- $10,000