Question

Accounting for share issues

On 1 February 2017, Beach Supplies Ltd was registered and issued a prospectus inviting applications for 2,000,000 shares, at an issue price of $3.50, payable as follows:

$1.00 on application
$1.50 on allotment (payment due within 1 month of allotment)
$0.60 on first call
$0.40 on final call

The issue is underwritten at a commission of $30,000.

By 28 February 2017, applications had been received for 1,900,000 shares. On 3 March, shares are allotted, and the underwriter forwarded the application and allotment money due on the 100,000 shares less their commission. All remaining allotment money is received by 3 April. Legal costs re company formation are $5,000 and are paid on 5 April. Share issue costs of $3,000 are also paid on the same date.

The first call is made on 10 April 2017, with money due by 10 May 2017. The final call is made on 15 May 2017, with money due by 15 June 2017. All money owing in relation to the two calls is received by the due dates except for the holders of 40,000 shares who did not pay either call, and the holder of another 10,000 shares who did not pay the second call. On 20 June 2017, as provided in the company’s constitution, the directors forfeited these 50,000 shares.

On 25 June 2017, the forfeited shares are reissued as fully paid for a consideration of $3.10 per share. Costs of forfeiture and reissue amounted to $10,000, and are paid. The constitution allows for the refund of any balance in the forfeited shares account after reissue to former shareholders, so refunds were made on 30 June 2017.

Required:

Prepare the journal entries to record the transactions of Beach Supplies Ltd up to and including that which took place on 30 June 2017. Show all relevant dates, narrations and workings

Answer 1

Date	Particulars	Debit (in $)	Credit (in $)
28th February 2017	Cash /Bank account Dr Share application account (Application money received on 19,00,000 shares of $ 1.00 each)	19,00,000	19,00,000
28th February 2017	Share application account Dr Share Capital account (Application money received on 19,00,000 shares of $1 transferred to share capital account)	19,00,000	19,00,000
3rd March 2017	Cash / Bank account Dr Share allotment account ( Allotment money received on 19,00,000 shares @ $1.50 each)	28,50,000	28,50,000
3rd March 2017	Share allotment account Dr Share capital account (share allotment money received on 19,00,000 shares @ $1.50 transferred to share capital account)	28,50,000	28,50,000
3rd March 2017	Cash / bank account Dr Underwriting commission account Dr Share application account Share allotment account (application and allotment money on underwritten shares that is 100,000 shares received @ $1 and $1.5 respectively after deducting the underwriting commission of $ 30,000)	2,20,000 30,000	1,00,000 1,50,000
3rd March 2017	Share application account Dr Share allotment account Dr Share capital account (application and allotment money on 1,00,000 underwritten shares money received transferred to share capital account)	1,00,000 1,50,000	2,50,000
5th April 2017	Legal expenses Dr Share issue expenses Dr Cash/ bank (Amount paid on legal costs for re company formation and share issues cost)	5000 3000	8000
10th May 2017	Cash/ bank Dr(20,00,000-40000)*$.60 Calls in arrears Dr (40,000*$.60) Share first call account (share first call money received on 19,60,000 shares @ $ .60 per share and on 40,000 shares not received transferred to calls in arrears account)	11,76,000 24,000	12,00,000
10th May 2017	Share first call account Dr Share Capital account (Share first call money received including arrears transferred to share capital account)	12,00,000	12,00,000
15th June 2017	Cash/ bank Dr (19,50,000 * $.40) Calls in arrears Dr(50,000 * $.40) Share second and final call account (share second and final call money received on 19,50,000 shares@ $.40 each and on 50,000 shares the money not received debited to calls in arrears account @$.40 each)	7,80,000 20,000	8,00,000
15th June 2017	Share second and final call account Dr Share Capital account (share second and final call money received including in arrears transferred to share capital account.)	8,00,000	8,00,000
20th June 2017	Share capital account Dr(50,000 * $3.50)    Share forfeited account (40,000 * $2.5) +(10,000 * $3.1) calls in arrears account (As per constitution 50,000 shares forfeited for non payment of first and second on 40,000 shares and second call alone on 10,000 shares. Default debited to arrears account now reversed.)	1,75,000	1,31,000 44,000
25th June 2017	Cash/ Bank Dr(50,000 * $3.1) Discount on re- issue of shares Dr (50,000 * $ .40) Share Capital account (50,000 * $3.50) (50,000 forfeited shares are reissued @ $3.10 that is for a discount of $.4 per share and amount received there on transferred to share capital and discount amount to discount on issue of shares.)	1,55,000 20,000	1,75,000
25th June 2017	Forfeiture & Reissue expense account Dr Cash /bank account ( Cost on forfeiture and reissue of 50,000 shares expenses paid)	10,000	10,000
25th June 2017	Shares forfeited account Dr Discount on re-issue of share Discount @$.40 on reissued 50,000 shares transferred to shares forfeited account.	20,000	20,000
30th June 2017	Shares forfeited account Dr [ (40,000 * $2.50) + (10,000 *$3.1) -20,000 ] Cash/ bank account (Refunds in the balance of forfeited shares account to former shareholder)	1,11,000	1,11,000