Question

Question 1 Accounting for Equity                                                                   

Sugar Ltd was involved in the following transactions during 1 July 2019 to 30 June 2020 financial period.

1. On 5 November 2019 the directors of the company decided to raise extra capital by issuing 2 million ordinary shares publicly at a price of $2 each share. The company received application monies of $4,800,000 for 2.4 million shares on 30 November.
2. The company decided to allot shares to applicants on the basis of 10 shares for every 12 shares applied for on 30 December.
3. On 30 December, the excess amounts paid on application were refunded to applicants after the allotment.
4. The funds raised were transferred to the company’s business account.
5. The company paid $300,000 interim dividends from prior retained earnings to ordinary shareholders on 7 February 2020.
6. The company issued 280,000 bonus shares at a price of $2 per share from general reserve on 30 June 2020.
7. The company earned $700,000 profit during the financial year ended 30 June 2020.

Required:

Provide journal entries to record the above transactions for 2019/2020 financial year. (Narrations are required)      

Answer 1

SUGAR LTD.

JOURNAL ENTRIES:-

05.11.2019 Bank A/c    Dr.                                 $4800000

                        To Share Application A/c                              $4800000

                   (Being Share application money received)

30.11.2019 Share Application A/c     Dr.                      $4000000

                        To Share Capital A/c($2000000*2)                           $4000000

                   (Being Share application money transferred)

31.12.2019 Share Application A/c Dr.                            $800000

                         To Bank A/c                                                             $800000

                     (Being excess money refunded back)

07.02.2020 Retained Earnings A/c Dr.                          $300000

                        To Dividend Payable A/c                                           $300000

                   (Being dividend declared)

07.02.2020 Dividend Payable A/c Dr.                  $300000

To Bank A/c    $300000

   (Being dividend paid)

30.06.2020 General Reserve A/c Dr. $560000

   To Share Capital A/c    $560000

(Being bonus shares issued)

30.06.2020 Net Profit A/c Dr. $700000

   To Statement of Profit & Loss A/c $700000

   (Being profit incurred transferred to P&L A/c)