Question

33

On 23 October 2027, Preston Garvey Ltd had a balance of $100,000 in their options account. This reflected the full premiums paid by the holders of 100,000 options which were on issue. Each option entitled the holder to acquire one ordinary share in Preston Garvey Ltd for $4. Each option expires on 1 December 2027. By 1 December 2027, 25% of the options had been exercised. The remaining options duly lapsed. Which of the following is NOT a journal entry which would be part of recording the exercising of the options and issuing of the shares?

Dr Options $25,000 Cr Share Capital $25,000 Dr Cash $100,000 Cr Share Capital $100,000 Dr Options $75,000 Cr Lapsed Options Reserve $75,000 Dr Cash $75,000 Cr Options $75,000

Answer 1

Last entry is not a journal entry i,e, the 4 th one.

The first entry refers to trasnfer of amount from options account to share capital account on exercise of 25% options, which is correct.

2nd entry refers to receipt of $4 for 25000 shares=$ 2500*4 =$ 100000 which is correctly debited to cash and credited to capital account.

The remaining balance of ($ 100000-25000) = $ 75000 is correctly transferred to reserve account.

The balance of $ 75000 will not be added to cash account on lapse of option hence 4 th entry is incorrect.