XY has recently begun to lease an expensive machine. The lease agreement effectivelymeans that XY takes on substantially the risk and rewards associated with owning the asset.The managing director has instructed XY's finance director to treat the lease as an operatinglease in order to show a better financial position.(c)CD had 5,000,000 $1 ordinary shares in issue.Subsequently, CD made a rights issue of 1 new ordinary share at $3.50 per share for every 5ordinary shares currently held. At the same date CD's ordinary shares were trading at $4.75.(d)PU purchased machinery on 1 April 2011 for $350,000.PU depreciates machinery over 10 years, using the straight line method assuming no residualvalue.Required:Explain any ethical issues that this may cause for the finance director.
Required:
(i) Explain the difference between a bonus issue and a rights issue of shares.
(ii) Prepare the journal entries required to record CD's rights issue in its financial records, assuming that all rights were taken up.