Total equity increases only by rights issue proceeds; bonus shares rearrange existing equity

Steps:

• Initial equity: share capital $150,000 + share premium$75,000 + general reserve $125,000 + retained earnings$25,000 = $375,000
• Bonus issue: 150,000 / 3 = 50,000 new shares at $1 par, transfers$50,000 from reserves to capital; equity unchanged at $375,000; total shares now 200,000
• Rights issue: 200,000 / 4 = 50,000 new shares at $1.20 each ($1 par + 20% premium), adds $60,000 cash ($50,000 to capital, $10,000 to premium)
• Final equity: $375,000 +$60,000 = $435,000

Why B is correct:

• Bonus shares do not change total equity (internal transfer per accounting standards); rights issue adds exact proceeds received.

Why the others are wrong:

• A: Understates rights proceeds by $10,000 (ignores 20$50,000)
• C: Overstates by adding extra $40,000 (possibly double-counts reserves or misapplies bonus)
• D: Overstates by $50,000 (likely includes erroneous$500,000 figure as part of equity)

Final answer: B