Reference no: EM13828522
1. What is a share?
2. Identify two advantages of a private placement of shares as compared with a public issue.
3. The shareholders of Quinninup Ltd hold 25 000 A class ordinary shares, fully paid at $4.50 each. On 17 April 2013, the company directors voted to make a 1 for 5 rights offer to these shareholders. The additional shares were offered at $2.75 each, payable in full one month after acceptance.
The offer closed on 31 May 2013 with 85% of the shareholders accepting. Shares were duly allotted on that date and all monies were received when due.
Required
Prepare journal entries to record these events, show all workings.
4. Forrest Ltd has issued 10 000 5% cumulative preference shares. Explain the meaning of the term "cumulative".
5. The share capital of Murdoch Ltd consists of:
56 000 Ordinary A shares @ $2.50, fully paid $140 000
15 000 Ordinary B shares @ $1.50, paid to 80c 12 000
On 28 June 2013, the directors declared a 6c per share final dividend. Shareholder approval is not required to pay dividends.
Required
Prepare the journal entries to record the dividend, show all workings.
6. Eyre Ltd's share capital consists of 75 000 ordinary shares of $2.30 each, fully paid. On 17 February 2013 the directors offered these shareholders the right to acquire one new share for each three held at a price of $3 40 each, payable on acceptance. The offer closed on 17 March 2013 by which date acceptances had been received from all shareholders. The new shares were allotted on that day.
Required
Prepare journal entries to record the above events. Show all workings
7. Bremer Bay Ltd issued a prospectus offering 100 000 ordinary shares at $3.00 each, payable in full on application. The issue was underwritten by Staysure Insurance Co. for a commission fee of $7 500.
Required
Explain how you would account for the commission fee. Why?
8. On 15 April 2013, the directors of Hyden Ltd voted to buy back the company's 32,000 6% preference shares at $2 80 each. These shares had originally been issued at $2 40. It is company policy to account for buy backs firstly, against the share capital being redeemed and then equally against retained earnings and the asset revaluation reserve.
Required
Prepare the journal entry to record the buy back, show all workings.
9. Shannon Ltd has the following equity at 30 June 2013:
$
86 000 ordinary shares @ $2.00, fully paid 172 000
57 000 ordinary shares @ $3.00, paid to $2.40 136 800
Calls in advance (7 000 shares) 4 200
Retained earnings 120 000
433 000
On 24 November 2013, the directors made the final call on the partly paid shares with monies due and payable on 31 December 2013. All monies were duly received.
Required
Prepare the journal entries to record the call, show all workings.
10. Under what circumstances may a company retain excess application monies?
11. The equity of Pemberton Ltd at 30 June 2013 consisted of:
$
68 000 ordinary shares @ $2 00, called to $2 00 136 000
Calls in arrears (6 500 shares) (3 900)
Retained earnings 26 500
158 600
On 3 July 2013, the directors voted to forfeit the shares on which calls remain unpaid. The forfeited shares are to be reissued as paid to $2.00 on payment of $1.85 cash per share. Refunds are to be made to the former shareholders. The shares were reissued on 23 July 2013 and refund cheques mailed on 31 July 2013.
Required
Prepare the journal entries to record the above events, show all workings.
12. How does a bonus issue of shares differ from all other share issues?
13. On 30 September 2012 Northcliffe Ltd sold 40 000 options for $1.20 each. Each option allows the holder to acquire one new ordinary share for $2.75 cash, payable on exercise. Options must be exercised between 1 September and 30 September 2013. By 30 September 2013, 35 100 options had been exercised.
Required
Prepare journal entries to record the exercise of the options, show all workings.
14. On 28 January 2013, the directors of Walpole Ltd vote to buy back 15 000 employee scheme shares issued at $1.72 each, for $1.95 cash each. The company's policy is to account for any buy backs by reducing the class of shares bought back to zero and any remaining balance to be allocated against retained earnings.
Required
Prepare the journal entry to record the buy back, show all workings.
15. Identify two events that can lead to an decrease in the retained earnings account balance.
16. Why would a company engage an underwriter?
17. On 15 August 2013, Denmark Ltd issued a prospectus inviting applications to acquire 100 000 ordinary shares at $2.20 each, payable $1.60 on application and $0.60 on 31 August 2015. The offer was underwritten by Investsure Ltd for a commission fee of $6 750. The offer closed on 30 September 2013 with 115 000 applications having been received. Shares were allotted on 12 October 2013 on a first-come, first-serve basis. The underwriter was paid on 8 October 2013.
Required
Prepare journal entries to record the above events, show all workings.
18. On 28 June 2013, the directors of Hopetoun Ltd voted to transfer $35 000 to the plant maintenance reserve from retained earnings.
Required
Prepare the journal entry to record the transfer.
19. On 13 March 2013, Ravensthorpe Ltd issued a prospectus offering for sale 35 000 6% preference shares at $2.85 each, payable in full on application. The offer closed on 30 April 2013 with 29 700 applications having been received. Shares were allotted on 5 May 2013.
Required
Prepare journal entries to record the above events. Show all workings
20. On 27 June 2013, the directors of Esperance Ltd declared an 6c per share ordinary share dividend. At that date 85 000 ordinary shares were on issue and fully paid. Shareholder approval is required to pay dividends and is normally obtained at the annual general meeting, which is scheduled to be held on 29 September 2013. Cheques are mailed to shareholders one month from the date of approval.
Required
Discuss how and when the dividend would be recorded by Esperance Ltd.
21. Describe how a general reserve and an asset revaluation reserve are created.
22. On 21 July 2013, Salmon Gums Ltd offered each of its shareholders the opportunity to buy 1 option for each 10 shares held at a price of 0.90 each. The option entitles the holder to acquire one ordinary share for $3.20 and is exercisable between 1 August and 30 September 2016. Currently, Salmon Gums Ltd has 260,000 fully paid ordinary shares. The offer closed on 21 August with applications (and monies) for 24 320 options having been received.
Required
Prepare the journal entries to record the above events, show all workings.
23. On 17 November 2013, the directors of Dardanup Ltd forfeited 25 000 shares for non-payment of a call. The issue price of the shares was $3.50 each payable $2.60 on application and then an 90 cent call. The company's constitution stipulates that forfeited shares are not to be reissued, and no refund is to be made to the former shareholders.
Required
Prepare the journal entries to record the above events, show all workings.
24. At 30 June 2013, the equity of Norseman Ltd consisted of:
120 000 Ordinary A Class shares, fully paid at $2.40 288 000
90 000 Ordinary B Class shares at $2.00, paid to $1.20 108 000
20 000 6% Preference shares, fully paid at $3.00 60 000
General Reserve 20 000
Retained Earnings 127 000
603 000
On that date the directors declared, in lieu of a cash dividend, a 1 for 8 bonus issue to be funded, initially from the General Reserve and then from Retained Earnings. The new shares are valued at $1.10 (A Ordinary), $0.60 (B Ordinary) and $1.60 (Preference).
Required
Prepare the journal entry to record the bonus issue, show all workings.