PRACTICAL QUESTION Merflow Ltd invited applications for 7 million equity shares
ID: 2333499 • Letter: P
Question
PRACTICAL QUESTION
Merflow Ltd invited applications for 7 million equity shares of $2.75 each payable as follows:
$0.50 per share on application
$1.50 per share on allotment
$0.75 per share on final call
On 1/8/2016, applications were received for 35,000,000 million shares (that is, 28,000,000 million in excess of the number of shares on offer).
Merflow’s constitution allows the company to apply any excess monies received to satisfy future amounts payable on allotment and on call. Therefore, the board of directors decide to make a 1:5 pro-rata allotment of the shares applied for to every applicant. This means that applicants received one share for every 5 they applied for.
The shares were issued on 1/9/2016. The call monies were payable on 9/1/2017.
The final call was payable on 9/1/2017. However, shareholders of 500,000 partly paid shares (i.e. until this date shareholders have paid $2.00 per share) failed to pay by the due date for the final call.
The forfeited partly paid shares were auctioned to existing shareholders on 1/3/2017. The 500,000 shares were taken up at $2.00 per share.
Any remaining funds after re-issuance of the forfeited shares were returned to the original shareholders on 1/4/2017.
Required:
1) Record the total value of applications for shares made in the books of the company
2) Record the allotment of shares.
3) Journalize the offset of excess funds.
4) Record the transfer of application monies into the company’s bank account.
5) Record the receipt of the call.
6) Journalize the forfeiture of the unpaid shares.
7) Record the receipt of payment for the auctioned shares.
8) Record the refund paid to the defaulting shareholders.
Explanation / Answer
answer:-
1) The total value of applications for shares made in the books of the company:-
= 35,000,000 million * 0.50
= $17,500,000
2. The allotment of shares:-
= 35,000,000 + 7,000,000
= $42,000,000
=7,000,000 * 2.75
= $19,250,000
3.The offset of excess funds :-
=((35,000,000 - 7,000,000) * 0.50)
=$14,000,000
4).The transfer of application monies into the company’s bank account:-
= 35,000,000 * 0.50
= $17,500,000
5. The receipt of the call.:-
= 7,000,000 - 500,000
= $ 6,500,000
Note:- As per the chegg rule i have time limit to complete the question .that's why iam not answered for the last three questions .if you need that questions also please upload it as a another question, because i know the answer.
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Debit Credit Bank= 35,000,000 million * 0.50
= $17,500,000
Application $17,500,000Related Questions
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