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Salvatore Ltd is an existing company that previously issued 200,000 ordinary shares of $10 each. Balances...

Salvatore Ltd is an existing company that previously issued 200,000 ordinary shares of $10 each. Balances in accounts as at 30 June 2019 are: retained earnings $150,000, general reserve of $10,000 and tax payable $105,000.

On 1 July 2019 Salvatore Ltd decided to raise additional capital of 40,000 shares of $11 each. A total of 40,000 ordinary shares are to be offered at $10 each and the remainder in one call when required.

Applications for 44,000 shares were received by the closing date of 31st August, 2019.

On 15th September 2019 shares were issued and money paid to those unsuccessful applicants.

On 20th February 2020, the remaining call on the shares was made, and all cash was received on the call by 31st March, except for the holder of 6,000 shares.

Directors announced on 30th June 2020 a profit before tax of $500,000, of which $150,000 related to income tax.

On 5th July 2020, the board of directors during the Annual General Meeting announced that the company will pay ordinary dividends of 4.6 cents per fully paid equivalent share from retained earnings and $100,000 was transferred from retained earnings to the general reserve.

REQUIRED:

  1. Prepare properly formatted general journal entries to record the above transactions. Narrations are NOT required.                                      

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Expert Solution

Answer:

Date Account Title Debit Credit
2019
Aug.31 Cash trust (44,000*$10)          440,000
Application          440,000
(receipt of application for 44,000 shares at $2 per share)
Sep.15 Application          440,000
Share capital          400,000
Cash trust (4,000*$10)            40,000
(issue of 40,000 shares and refund to unsuccessful applicants)
2020
Feb.20 Call (40,000*$1)             40,000
Share capital            40,000
(Call due @$1 on 40,000 shares)
Mar.31 Cash (34,000*$1)             34,000
Calls-in-arrear               6,000
Call            40,000
Jun.30 Income summary ($500,000 - 150,000)          350,000
Retained earnings          350,000
Jul.05 Retained earnings (234,000*0.46)          107,640
Dividend payable          107,640
Jun.30 Retained earnings          100,000
General reserve          100,000

ekkarill92 answered 1 year ago
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