Bonus issue reallocates reserves; rights issue adds cash proceeds Steps:

• Initial equity: $150,000 (capital) +$75,000 (premium) + $125,000 (general reserve) +$25,000 (retained) = $375,000
• Bonus: 50,000 shares (1:3 on 150,000) capitalize $50,000 to capital and$50,000 to premium from reserves; total equity unchanged at $375,000; shares now 200,000
• Rights: 50,000 shares (1:4 on 200,000) at $1.20 each ($1 par + $0.20 premium); proceeds$60,000
• Final equity: $375,000 +$60,000 = $435,000 Why B is correct:
• Rights issue increases equity by full subscription proceeds per accounting standards (IFRS/IAS 32), here $60,000 on initial$375,000 base. Why the others are wrong:
• A: Subtracts bonus capitalization or ignores rights premium ($20,000 short).
• C: Treats bonus as adding value or uses pre-bonus shares for rights ($40,000 over).
• D: Double-counts rights premium or misapplies bonus premium ($50,000 over). Final answer: B