Question

In: Accounting

You are employed as an accountant by a new company called Refresh Ltd. The company was...

You are employed as an accountant by a new company called Refresh Ltd. The company was incorporated on 1 July 2018 and is now trying to raise some new equity.

On 1 July 2018, Refresh Ltd offered 5,000,000 ordinary shares to the public at an issue price of $4.00 per share, with $2.50 payable on application, $1.00 due within one month of allotment, and $0.50 due on a call to be made at a later date. The closing date for applications was 31 July 2018. The issue is underwritten at a commission of $17,000.

By 31 July 2018, applications had been received for 6,000,000 shares. On 10 August 2019, 5,000,000 shares were allotted in proportion to the number of shares for which applications had been made. The excess application money was retained and offset against the amount payable on allotment.

The underwriter’s commission was paid on the 12 August 2019 and all allotment money was received by 10 September 2018.

The call is made on 1 February 2019, with money payable by the end of the month. By 28 February 2019, all call money was received except for holders of 20,000 shares who failed to meet the call.

On 20 March 2019, the 20,000 shares were forfeited. These forfeited shares were auctioned on 5 April 2019 as fully paid. An amount of $3.40 was received for each share sold. Share re-issue costs amounted to $5,000, and were paid on the same day of auction. The constitution provided for any surplus on resale, after satisfaction of unpaid instalments and any costs, to be returned to shareholders whose shares were forfeited. This money was returned on the 12 April 2019.

  

Required:

As the accountant of Refresh Ltd, prepare the journal entries necessary to account for the above transactions and events.

Important tips:

  • Show all journal entries in chronological order, with dates stated clearly beside each set of entries.
  • In preparing your journal entries, you should include brief narrations and relevant workings to support your figures.

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