Question

Cool Breeze Ltd required additional equity funding and decided to issue a renounceable rights offer. To reduce risks associated with the rights issue, Cool Breeze appointed an underwriter. Cool Breeze sent out details of the rights issue to existing shareholders on 1 July 2019 and offered existing shareholders the right to acquire an additional share in Cool Breeze for $3.00 per share. The shares were to be fully paid on application and all applications had to be received by 10 September 2019. The total shares on offer through the rights issue were 15 million. By 10 September 2019 applications had been received for 13 million shares, meaning that the underwriter was responsible for acquiring the remaining 2 million shares. The shares were issued on 17 September 2019 with this also being the date on which amounts due from the underwriter were received. REQUIRED Provide the journal entries to account for the Cool Breeze Ltd rights issue.

Answer 1

Date	Particulars	Debit	Credit	Remarks
10-Sep-19	Bank Account	39,000,000		Number of shares * price per share (13 Million shares * 3 per share)
	To Share Application Account		39,000,000
	Being application money received on 13 million shares out of 15 million shares issued by the company
10-Sep	Underwriters Receivable account	6,000,000		Number of shares * price per share ( 2 million share shortfall * 3 per shares)
	To Share Application Account		6,000,000
	Out of total 15 million shares issued by the company. The application is received only for 13 Million shares. Remaining shares to be issued to underwriters
17-Sep-19	Share Application Account	39,000,000		Number of shares * price per share (13 Million shares * 3 per share)
	To Share Capital Account		39,000,000
	shares issued to subscribers for the application received. The amount is fully paid up and money transferred to share capital account
17-Sep-19	Bank Account	6,000,000		Number of shares * price per share (2 Million shares * 3 per share)
	To Underwriters Receivable account		6,000,000
	shares issued to subscribers for the application received. The amount is fully paid up and money transferred to share capital account
	2 million shortfall shares subscribed are issued to underwriters. The amount is received from the underwriters on Sep 17
17-Sep-19	Share Application Account	6,000,000		Number of shares * price per share (2 Million shares * 3 per share)
	To Share Capital Account		6,000,000
	shares issued to underwriters for the shortfall in the application received. The amount is fully paid up and money transferred to share capital account
	Assumption
	It is assumed that nominal value of right share is 3 per share. Hence shares issued is neither at discount or premium.