Question

Efficiency Ltd is an existing company that previously issued 200,000 ordinary shares of $10 each and 25 000, 8% preference shares at $20 each.

On 1 July 2019 Efficiency Ltd decided to raise additional capital via a rights issue of 1 to 5 at $10 per share for every 5 shares currently held. The current market price is $11. A total of 40,000 ordinary shares are to be offered.

Applications for 40,000 shares were received by the closing date of 31^st August, 2019.

On 15^th September 2019 shares were issued.

Directors announced on 30^th June 2020 a profit before tax of $500,000, of which $150,000 related to income tax.

On 5th July 2020, the board of directors during the Annual General Meeting announced that the company will pay preference dividends and ordinary dividends of 4.6 cents per fully paid equivalent share from retained earnings and $100,000 was transferred from the general reserve to retained earnings.

REQUIRED:

Prepare properly formatted general journal entries to record the above transactions. Narrations are NOTrequired.   

Answer 1

Solution: (Amounts in $)

Date	Particular	Amount Dr	Amount Cr
31st Aug 2019	Bank A/c Dr	4,00,000
	To Common Stock Application & Allotment		4,00,000
15th Sep 2019	Common Stock Application & Allotment	4,00,000
	To Common Stock capital A/c.		4,00,000
30th June 2020	Profit & Loss Statement A/c. Dr	1,50,000
	To Provison for Tax A/c.		1,50,000
5th July 2020	Retained Earning A/c. Dr	150,400
	To Dividend payable A/c.		150,400
	Dividend payable A/c.	150,400
	To Bank A/c.		150,400
	General Reserve A/c. Dr	1,00,000
	To Retained Earnings		1,00,000

Note:

Calculation of Dividend payable in cash

1. on preference share 25000 * 20 $ * 8% = 40,000

2. on Common stock = 240000 * 10 * 4.6% = 110,400

Total Dividend payable 40,000 + 110,400 = 150,400