A Level Accounting (9706)•9706/12/M/J/19
Explanation
Cash inflow solely from rights issue Steps:
- Calculate cash from rights issue: 1,000 shares × 1,250 inflow to bank.
- Bonus issue uses retained earnings for new shares; zero cash effect.
- Dividend payment causes outflow ($0.50 per share on shares then in issue); net effect negative, but increase refers to inflow component.
- Total bank increase: $1,250 from rights only.
Why A is correct:
- Rights issue proceeds directly credit the bank account per standard share issuance accounting (Dr Bank, Cr Share capital/premium).
Why the others are wrong:
- B: Misapplies price or share count (e.g., 1,400 × $1.25).
- C: Confuses with partial dividend outflow (e.g., 6,000 shares × $0.50).
- D: Erroneously includes original shares or inflates issue size.
Final answer: A
Topic: Preparation of financial statements
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