On the 31st of March 2017 James Ltd was registered with the NZ Companies Office.
ID: 2339899 • Letter: O
Question
On the 31st of March 2017 James Ltd was registered with the NZ Companies Office. James Ltd has a balance date of 31 March. The prospectus offered for sale 1,000,000 ordinary shares at $6 each. External costs (advertising, legal fees, brokerage fees) associated with the issue were $50,000. The monies were due as follows:
$2.00 on application;
$2.00 due on allotment; and
$2.00 on call 3 months after the allotment of the shares.
Following is the timeline of events, April 1, 2017 - March 31, 2018: April 1st Prospectus issued.
April 30th Received applications for 1,150,000 shares and all application monies.
May 7th 1,000,000 ordinary shares were allotted on a pro rata basis. The excess cash received on application is to be retained in the company and set off against amounts receivable at allotment.
May 31st All allotment monies due were received. Aug 21st Remaining capital was called.
Sept 5th All call monies were received.
March 31st The Board declared a dividend of 10 cents per share. Shareholder approval for this dividend will be sought at the annual general meeting in May 2018.
Required : journalise the entries to record all of the following events in the books of James Ltd.
Also I have an additional question
- Should I wirte external cost in journal entry?
- Could you tell me how to calculuate pro rata basis allotment?
- For this question, May 7th 1,000,000 ordinary shares were allotted on a pro rata basis. The excess cash received on application is to be retained in the company and set off against amounts receivable at allotment. Should I write in journal about excess cash received(300,000)?
- Should I transfer money in bank?
Date Account Titles and Explanation Debit ($ Credit ($ 1/04/17 External cost 50,000.00 Cash Advertising, legal fees, brokerage fees 50,000.00 30/04/17 Bank 2,300,000.00 Share application 1,150,000 shares x $2 per share $2,300,000 2,300,000.00 7/05/17 Share application 2,300,000.00 Share capital Share allotment 2,000,000.00 300,000.00 1,150,000 shares x $2 per share $2,300,000 31/05/17 Share allotment 2,000,000.00 Share capital 1,000,000 shares x $2 per share $2,000,000 2,000,000.00 Bank 1,700,000.00 Share allotment 1,700,000.00 (1,000,000 share x $2 per share) 300,000 $1,700,000 21/08/17 Share first and final call 2,000,000.00 Share capital $1,000,000 shares x $2 per share $2,000,000 2,000,000.00 5/09/17 Bank 2,000,000.00 Share first and final call 2,000,000.00 1,000,000 shares x $2 per share $2,000,000 31/03/18 Retained earining 600,000.00 Dividend (1,000,000 shares x $6 per share) x $0.1 = $600,000 600,000.00Explanation / Answer
Your understanding of the subject-concept is really good. All your entries are correct ,but for the last one (both amt. & a/c head) It should be Retained Earnings 100000 Dividend Payable 100000 (1000000*0.1) External costs need to be journalised. It can also be Miscellaneous expenses 50000 Bank 50000 Another alternative ,is to treat the whole $ 50000 as a deferred revenue expenditure & write-off in equal portions, for a given no.of years. But,it is not required in the question. Here, the money received is prorated between share capital($ 2000000) & share allotment (300000) As for May 7th entry, what you did is perfectly correct. The full debit amount recd. Is in Bank (2300000)--- you need not transfer. It is already there. The corresponding credits are in: Share capital -- 2000000 & Share allotment --- 300000 Hope, I'm clear. Pl. revert for any more querries.
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