Answer to Question #114405 in Accounting for Nikki Concepcion

Question

RCK Ltd issues a prospectus inviting the public to subscribe for 90 million ordinary shares of $2.00 each. The terms of the issue are that $1.00 is to be paid on application and the remaining $1.00 within one month of allotment.

Applications are received for 108 million shares during July 2018. The directors allot 90 million shares on 15 August 2018. All applicants receive shares on a pro rata basis. The amounts payable on allotment are due by 20 September 2018. By 20 September 2018 the holders of 18 million shares have failed to pay the amounts due on allotment. The directors forfeit the shares on 30 September 2018.

The shares are resold on 15 October 2018 as fully paid. An amount of $2.00 per share is received. The balance of forfeited shares is refunded on 20 October 2018.

Required:
Provide the journal entries necessary to account for the above transactions and events.

Answer 1

1.Issue of shares:

Debit settlements with founders credit authorized capital - $180 million(90*$2)

2.Reflection of the shareholders' subscription for shares (according to the subscription agreement) July 2018

Debit authorized capital subaccount 1 credit authorized capital subaccount 2 - $ 216 million (108*2)

3. Cash flow contributed by shareholders 15 August 2018

Debit settlement account credit settlements with shareholders - $180 million

4.Unsold shares (unpaid) shares are canceled 30 September 2018. 

5The company redeems part of the shares and then cancels them

Debit Own shares (shares) credit registered capital - $36 million (216-180) 15 October 2018

Debit registered capital credit Own shares (shares) - $36 million (216-180) - 20 October 2018