Question 1

Maxi Ltd’s equity at 30 June 2021 was as follows:

200 000 ordinary shares, issued at $1.60, fully paid

300 000 ordinary shares, issued at $2, called to $1.40

150 000 redeemable preference shares, issued at $1, fully paid Calls in advance (20 000 ordinary shares)

Share issue costs

General reserve

Retained earnings

The following events occurred during the year ended 30 June 2022:

$  320 000

420 000

150 000

10 000

(7 000)

60 000

320 000

2021

July

Sept.

Sept.

Oct.

2022

Jan.

Feb.

April

18         The final call, due 1 September, was made on the partly paid shares.

3           All call money was received, except for that due on 28 000 shares. None of the holders of these shares had contributed to the calls in advance.

18         In accordance with the constitution, the shares on which the call was unpaid were forfeited. The company is entitled to keep any balance from forfeiture of shares.

2           The company offered ordinary shareholders 1 option (at a price of 60 cents per option) for every 4 shares held. Each option entitled the holder  to  buy  1  ordinary  share  at  a  price  of  $1.80  per  share, exercisable on or before 15 April 2022.

29          85 000 options were taken up by shareholders, for which all money

due was received.

5          A prospectus was issued, inviting applications for 120 000 ordinary shares at an issue price of $2, payable in full on application. The purpose of the issue was to fund the redemption of the preference shares. The issue was underwritten at a commission of $9 000.

28        The issue closed fully subscribed, with all money due having been received.

3          The 120 000 shares were allotted, and the underwriting commission was paid.

19        The directors resolved to buyback the preference shares out of the proceeds of the January share issue for $1.20 per share. There were no tax or dividend distribution issues to consider. Assume that the original  amount  of  shares  is  eliminated  from  Share  Capital,  then adjustments are made from Retained Earnings.

24         Payments were made to the preference shareholders.

13         70 000 shares were issued as a result of 70 000 options having been

exercised,  for  which  money  had  been  received.  The  unexercised options lapsed.

Prepare general journal entries to record the above transactions.

(30 marks)

Question 2

The trial balance of Life Ltd’s accounts as at 30 June 2022 is shown below:

LIFE LTD

Trial Balance

as at 30 June 2022

Share Capital - 100,000 A ordinary shares - fully paid        Share Capital - 100,000 B ordinary shares issued for $1, called to 70c

Calls in arrears - B ordinary

Share Capital - 60,000 12% preference shares - fully paid Retained Earnings

General Reserve

Land

Buildings

Accumulated Depreciation - Buildings

Plant and equipment

Accumulated Depreciation – Plant and Equipment

Cash at bank

Accounts Receivable

Inventory

Bills Receivable

Debentures (secured by circulating charge)

Accounts Payable

Income Tax Payable

Mortgage on Land and Buildings

Debit

$  20 000

37 200

108 000

98 400

1 200

69 600

146 400

57 600

$538 400

Credit

$ 100 000 70 000

60 000

12 640

14 000

36 000

16 800

34 560

108 000

4 800 81 600 $538 400

Other information:

1.  There is an arrears of preference dividend of $13,600. The constitution gives preference shareholders priority of payment of arrears of preference dividends. However, all shares rank equally regarding return of capital based on the number of shares held.

2.  The liquidator discovered that:

a.   $3,800 worth of Accounts Payable had not been recorded.

b.   In total, the creditors were willing to give a discount of $2,500 upon settlement of the Accounts Payable.

c .   Salaries and wages totalling $2,300 had not been recorded .

d.  Accrued interest of $2,000 on the mortgage and $1,200 on the debentures had not been recorded.