The notice shown below appeared in the Financial News on 1 October 2017. ARGAN N
ID: 2469624 • Letter: T
Question
The notice shown below appeared in the Financial News on 1 October 2017.
ARGAN NL
Notice of Sale of Forfeited Shares
All shares on which the call of fifty cents per share, due for payment on 1 September 2017, remains unpaid, will be sold by public auction on 1 November 2017, at 11 a.m. at the Australian Securities Exchange, Sydney, NSW.
Assume the following:
• 1 000 000 shares were forfeited
• the forfeited shares were all paid to $1.50 per share
• all the shares were sold at the auction for $1.80 per share and will be credited to $2.00
• costs of forfeiture and reissue amounted to $4000
• the balance of the Forfeited Shares account will be refunded to the former shareholders.
Required
Discuss the benefits to a company from forfeiting and reissuing shares, and prepare journal entries to record the forfeiture and reissue above.
Explanation / Answer
2017
Share Capital Dr 2 000 000
Call Cr 500 000
Forfeited Shares Liability Cr 1 500 000
(Forfeiture of 1 000 000 shares
called to $2 for non-payment of 50c call)
1 Nov Cash Dr 1 800 000
Forfeited Shares Liability Dr 200 000
Share Capital Cr 2 000 000
(Reissue of forfeited shares at
public auction for $1.80, paid to $2)
Forfeited Shares Liability Dr 4 000
Cash Cr 4 000
(Expenses of forfeiture and reissue)
Forfeited Shares Liability Dr 1 296 000
Cash Cr 1 296 000
(Refund to former shareholders)
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