I am in charge of processing corporate actions. Recently I have been seeing rights offering by some of our holdings.
Basically we hold stock, and, because of our ownership, we have been issued rights to buy additional shares of stock at a certain price. How do I do the accounting for these rights? Does the treatment differ depending on the circumstances? for example:
If the rights are tradeable and have a market value on a public exchange?
If the rights are in the money vs out of the money?
How far out the expiration date?
I am trying to figure out the proper journal entries. Any sources cited would be much appreciated as well.
FYI currently we process these not based on guidance, but based on "what the last guy did". If the rights are traded and have a market value we debit and credit @ market value:
(Dr) Rights XX
(Cr)Dividend income XX
If the rights are not traded and have no market value, we make no entries unless the rights are exercised in which case we treat it like a purcase.
(Dr) Rights XX
(Cr)Cash XX
Basically we hold stock, and, because of our ownership, we have been issued rights to buy additional shares of stock at a certain price. How do I do the accounting for these rights? Does the treatment differ depending on the circumstances? for example:
If the rights are tradeable and have a market value on a public exchange?
If the rights are in the money vs out of the money?
How far out the expiration date?
I am trying to figure out the proper journal entries. Any sources cited would be much appreciated as well.
FYI currently we process these not based on guidance, but based on "what the last guy did". If the rights are traded and have a market value we debit and credit @ market value:
(Dr) Rights XX
(Cr)Dividend income XX
If the rights are not traded and have no market value, we make no entries unless the rights are exercised in which case we treat it like a purcase.
(Dr) Rights XX
(Cr)Cash XX