ACCOUNTING METHOD IIASSIGNMENT SHARE ISSUES
This assignment comprises four questions all dealing with share issue topics. The questions relate to:
- New share issue
- Share rights issue
- Forfeiture and reissue of shares
- Payment of dividends
Each question is independent of the other questions.
QUESTION 1 - NEW SHARE ISSUE
Pronting Enterprises Ltd was incorporated several decades ago. As at the 30th June 20X1 the company had 10,560,000 Ordinary issued share fully paid to $4.00. There were no Calls in Arrears or Calls in Advance.
On the 1st August 20X1 the company released a Prospectus seeking investment by the public through the issue of a further 1,500,000 Ordinary shares at $4.00 each. Details of payments are as follows:
- $1.00 payable on Application which closes 30th September 20X1
- $1.50 payable on Allotment
- The remainder payable on Call/s at the company's discretion.
As at 30th September 20X1 the following Applications had been received:
- 400,000 applications who paid $4.00 per share
- 500,000 applications who paid the application and the allotment amounts
- 900,000 applications who paid the application amount only.
On 1st October 20X1 the following decisions were made:
- Applicants who paid for the shares in full were allotted all of the shares they applied for
- Applicants who paid the application and allotment monies received 4 shares for every 5 applied for. Excess monies were retained for future calls.
- Of the 900,000 applications who paid the Application amount only, 100,000 had their applications rejected and their money returned. The remaining applicants were issued 7 shares for every 8 applied for and excess money was allocated to the allotment.
All shares were allotted as detailed above on 1st October 20X1 and allotment monies were required to be paid on 31st October 20X1.
All outstanding allotment monies were received as required.
On the 1st January 20X2 Pronting Enterprises Ltd made a call of $1.00 per share payable on the 28th February 20X2. Previous amounts held were allocated in satisfaction of the call.
As at 28th February 20X2 all call monies were received except for 150,000 shares.
REQUIRED -
i. Prepare general journal entries with narrations for Pronting Enterprises Ltd to record all transactions from the events described.
ii. Record the general journal entries from i) above in general ledger T accounts and balance the accounts as at 28th Februarys 20X2. Assume that the Cash at Bank account was a dedicated account for the share issue and, therefore, had no opening balance or had any other transactions other than those that arose out of the share issue transaction above.
QUESTION 2 - SHARE RIGHTS ISSUE
Pyke Franchises Ltd equity section of its Balance Sheet as at 30th June 20X5 presents as follows:
EQUITY $ 000s
Share Capital
Ordinary shares paid to $5.00 48,000
8% $10.00 Preference shares 12,000
Reserves
Foreign exchange translation 2,564
Asset revaluation surplus 4,560
Retained Profits 6,732
TOTAL EQUITY 73,856
The Preference shares are non-participating. Share issue costs of $2,000,000 have been offset against the Ordinary share capital.
The company wishes to raise further capital and decides to offer existing Ordinary shareholders with the opportunity to invest further in the company. As a result a renounceable Rights issue is made to those shareholders of 1 share for every 10 heldat an exercise price of $5.00/share payable in full at the exercise date of 31st October 20X5. There are no costs associated with thisRights issue.
As at 31st October 20X5 the required money had been received from 85% of shareholders. The remaining shareholders decided not to take up the offer.
REQUIRED - Prepare general journal entry's with narrations to record the transactions resulting from the Rights issue. Show any calculations you consider relevant.
QUESTION 3 - FORFEITURE AND REISSUE OF SHARES
Scottie Golf Ltd is an unlisted company and has been operating for a number of years. At the beginning of the 20X8/X9 financial year it decided to raise further capital from the public. As a result it issued a prospectus for 2,000,000 shares at $5.00/share. The offer was oversubscribed and all 2,000,000 shares were issued. A First Call was made on the shares on 1st January 20X9. The general ledger T accounts below provide the details of the issue and the call.
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Share Capital
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1/7/X8 Bal b/d
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8,700,000
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1/10/X8 Applications
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4,000,000
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Allotment
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2,000,000
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1/1/X9 First Call
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2,000,000
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Calls in Advance
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1/1/X9 First Call
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500,000
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1/10/X8 Applications
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1,000,000
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First Call
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1/1/X9 Share Capital
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2,000,000
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1/1/X9 Calls in Advance
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500,000
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28/2/X9 Cash at Bank
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1,461,830
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On 1st March 20X9 the decision was made to forfeit the shares of those shareholders who did not pay the Call. Those shares were offered to another single shareholder at price of $3.80/share but paid to $4.00/share with that shareholder having to pay any future calls. The single shareholder paid the amount due on 15th March 20X9 and the costs associated with the forfeiture and re-issue were $5,700. The forfeited shareholders received refunds of the remaining amounts on 31st March 20X9.
REQUIRED - Prepare general journal entries with narrations to record all the transactions dealing with the share forfeiture, subsequent share reissue and payment to forfeited shareholders.
QUESTION 4 - DIVIDENDS
JDay Retailing Ltd is anunlisted company and has been very successful in recent years. The company now has a solid history of paying dividends to its shareholders. A number of years ago it also introduced a Dividend Reinvestment Plan (DRP) for its shareholders. 60% of the shareholders now utilise the DRP for the receipt of their dividends and the remaining shareholders receive cash. All shares are issued at $2.00/share.
The following are a series of events relating to dividends for Ordinary shareholders of the company:
15/6/20X4 Determined the final dividend for the year of $0.08/share to be paid from profits.
30/9/20X4 AGM approves the final dividend of $0.08/share and is paid on this date.
15/1/20X5 Paid a special dividend of $0.05/share out of a general reserve.
15/3/20X5 Declared and paid an interim dividend of $0.09/share out of profits.
20/6/20X5 Determined the final dividend for the year of $0.10/share to be paid out of profits.
30/9/20X5 AGM approves the final dividend of $0.11/share and is paid on this date.
The Register of Shareholders shows the following number of Ordinary shares issued at particular dates:
15/6/20X4 12,500,000
30/9/20X4 12,500,000
15/1/20X5 14,000,000
15/3/20X5 14,210,000
20/6/20X5 14,593,670
30/9/20X5 14,593,670
REQUIRED - Prepare general journal entries with narrations to record all the transactions dealing with all dividends which occurred in the 20X4/X5 financial year only.
Round numbers to the nearest dollar where applicable.