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Mining company Edgar Digging Ltd announced plans to raise $1 150 000 through a placement of...

Mining company Edgar Digging Ltd announced plans to raise $1 150 000 through a placement of 5 111 111 ordinary fully paid shares at $0.225 per share to institutional investors to fund new surveys and drilling campaigns for its copper project. Prior to this announcement the shares of Edgar Digging Ltd were trading at around $0.26. Required 1. Distinguish between a public share float and a debt issuance. 2. Assuming that the placement above proceeded, what journal entries would be required to account for it?

Maximum amount of words for the answer is 250.

Expert Solution

Debt Issuance: a. Debt issuance is when company or govt. raise funds by borrowing money from bondholders.

b. The borrowed money is to be repaid within a specified period.

c. Interest is paid at a specified rate on the money borrowed.

d. It becomes the part of long-term/short-term borrowings in the financial statements.

Public share issue: a. Public share issue is when company raise funds by calling money from public or existing shareholders against share in the company.

b. The money is not required to be repaid.

c. Divident is paid by the company on shares to the shareholders.

d. It becomes the part of capital in the financial statements.

JOURNAL ENTRIES IN CASE OF PLACEMENT ABOVE PROCEEDED:

1. Share application a/c Dr.

To Share over subscription a/c

(Being placement above proceeded amount transfrred to share oversubscription account)

2. Share oversubscription a/c Dr.

To Bank a/c

(Being oversubscription amount paid to the respective party to whom shares are not alloted)

ekkarill92 answered 2 years ago

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