Question

The following are selected transactions of Lily Corp. that took place during 2014 (prior to the entries below, the following was listed on the statement of financial position: Common Shares: 100,000 shares; value $1,000,000; Contributed Surplus 0; Retained Earnings $600,000). Jan. 1 Issued 100,000 common shares for $1,100,000 in total. Mar. 1 Issued 100,000 common shares for $12 per share. Apr. 1 Repurchased 10,000 shares and canceled them since the selling price dropped on the stock exchange to $13 per share. (Average selling price needs to be calculated)

May. 1 Offered blocks of 50 common shares for a price of $500 per block. 30% down payment required with the remainder due on June 1. Sold 1,000 blocks.

Jun 1 Received payment outstanding for the subscribed shares and issued the shares immediately.

Oct. 1 Declared a 5% share dividend and the share price is currently $11 to be distributed on Oct 15th.

Oct. 15 Issued the share dividend form Oct 1.

Required: a) Prepare the journal entries required for the above transactions

b) Prepare a journal entry for April 1st if there had of been only $1,000 in the contributed surplus account. c) Prepare the journal entry required on Jun 1 if 10% of the purchasers defaulted on their payment and the contract stated that no refunds would be allowed and there would be no pro-rata shares issued.

Answer 1

	No of shares	1,00,000
	Shares value	10,00,000
	Par value of a share	10	usd
Jan-01	Issue of 100000 shares at price of 11$ per share
		Amount in Usd	Amount in Usd
		Dr	Cr
Jan-01	Bank /Cash	11,00,000
	To contributed surplus		1,00,000
	To Common stock a/c		10,00,000
Mar-01	Issued 100,000 common shares for $12 per share.
		Dr	Cr
	Bank /Cash	12,00,000
	To contributed surplus		2,00,000
	To Common stock a/c		10,00,000
1st Apr	Repurchased 10,000 shares
		Dr	Cr
	Common stock	13000
	Bank		13000
	(Buy back of Shares at 13 Rs per share)
1st May	Offered blocks of 50 common shares for a price of $500 per block.
	30% down payment required with the remainder due on June 1. Sold 1,000 blocks.
		Dr	Cr
	Cash /Bank account	150000
	Issues common stock account		150000
	(Being entry for issue of 1000 blocks of shares at 500$ per block - @ 30% down payment)
		Dr	Cr
1st Jun	Bank / Cash account	350000
	Issued common stock account		350000
	(Receipt of the balance 70% of the shares issued)
1st Oct	Declaration of Diviend
	No entry for declaration of the dividend
15th Oct	Entry for payment of divident @ 5%
	Dividend is payable only on the nominal or par value of the common stock
		Dr	Cr
	Dividend expenses	50000
	Bank / Cash account		50000
	Being entry for payment of 'divident at 5% of the face value of commn stock
c	if 10% of the purchasers defaulted on their payment and the contract stated
	that no refunds would be allowed and there would be no pro-rata shares issued.
	Amount paid by the 10 percentage of the purchases .. That is 10% of 50000 shares
	5000 shares would be forfeited and no pro rate shares will be issued
	30% amount paid by these 5000 shares applicants will be forfeited
		Dr	Cr
	Common stock account	15000
	To forfeited shares account		15000