On 1 July 2017, Gum Ltd was registered and offered 1 000 000 ordinary shares to
ID: 2463220 • Letter: O
Question
On 1 July 2017, Gum Ltd was registered and offered 1 000 000 ordinary shares to the public at an issue price of $6, payable as follows:
$3 on application (due 15 August)
$2 on allotment (due 15 September)
$1 on final call
The issue was underwritten at a commission of $8000. By 15 August, applications had been received for 1 200 000 ordinary shares of which applicants for 200 000 shares forwarded the full $6 per share, the remainder paying only the application money.
At a directors’ meeting on 16 August, it was decided to allot shares in full to applicants who had paid the full amount and proportionally to all remaining applicants. According to the company’s constitution, all surplus money from application can be transferred to Allotment and/or Call accounts.
The underwriting commission was paid on 28 August. Other share issue costs of $6000 were also paid on this date. All outstanding allotment money was received by the due date.
The final call was made on 1 November with money due by 30 November. All money was received on the due date except for the holder of 30 000 shares who failed to meet the final call. On 7 December, as provided for in the constitution, the directors decided to forfeit these shares. They were reissued, on 15 December, as paid to $6 for $5.60 cash. The balance of the Forfeited Shares account was returned to the former shareholder on 16 December.
Required
Prepare the journal entries to record the transactions of Gum Ltd up to and including that which took place on 16 December 2017. (Show all workings.)
$3 on application (due 15 August)
$2 on allotment (due 15 September)
$1 on final call
Explanation / Answer
GUM LTD
General Journal
2017
August 15 Cash Trust Dr 4 200 000
Application Cr 4 200 000
(Cash received on application)
August 16 Application Dr 3 000 000
Allotment Dr 2 000 000
Share Capital Cr 5 000 000
(Allotment of 1 000 000 shares)
Cash Dr 4 200 000
Cash Trust Cr 4 200 000
(Transfer of trust funds)
Application * Dr 1 200 000
Allotment Cr 1 000 000
Calls in Advance Cr 200 000
(Allocation of application
across allotment and calls in advance)
August 28 Share Issue Costs/Share Capital Dr 14 000
Cash Cr 14 000
(Payment of underwriting
commission and other share
issue costs [$8 000 + $6 000])
September 15 Cash Dr 1 000 000
Allotment Cr 1 000 000
(Cash received on allotment)
2017
November 1 Call Dr 1 000 000
Share Capital Cr 1 000 000
(Call of $1 per share)
Calls in Advance Dr 200 000
Call Cr 200 000
(Transfer of calls received
in advance)
November 30 Cash Dr 770 000
Call Cr 770 000
(Cash received on 770 000 shares)
December 7 Share Capital Dr 180 000
Call Cr 30 000
Forfeited Shares Liability Cr 150 000
(Forfeiture of 30 000 shares)
December 15 Cash Dr 168 000
Forfeited Shares Liability Dr 12 000
Share Capital Cr 180 000
(Reissue of shares forfeited)
December 16 Forfeited Shares Liability Dr 138 000
Cash Cr 138 000
(Refund to former shareholders)
* Workings
Allocation of money received on application
No. of Shares applied for
No. of Shares Allotted
Money Received
Application
Allotment
Call
200 000
200 000
1 200 000
600 000
400 000
200 000
1 000 000
800 000
3 000 000
2 400 000
600 000
-
1 200 000
1 000 000
$4 200 000
$3 000 000
$1 000 000
$200 000
No. of Shares applied for
No. of Shares Allotted
Money Received
Application
Allotment
Call
200 000
200 000
1 200 000
600 000
400 000
200 000
1 000 000
800 000
3 000 000
2 400 000
600 000
-
1 200 000
1 000 000
$4 200 000
$3 000 000
$1 000 000
$200 000
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