ACC 312 Study Guide - Midterm Guide: Issued Shares

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greenwalrus59

30 Nov 2017

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The capital of a company is called share capital and may comprise ordinary shares and preference shares (although there are other classes of shares). The company determines the maximum share capital that it is ever likely to need to raise and this level is called its authorised share capital. The amount of shares actually in issue at any point in time is normally at a level for the company to meet its foreseeable requirements. These shares are (cid:272)alled the (cid:272)o(cid:373)pa(cid:374)(cid:455)(cid:859)s issued share (cid:272)apital, which when all the shareholders have paid for them are referred to as fully paid up issued share capital. Ordinary shareholders receive a dividend at a level determined usually by company performance and not as a specific entitlement. Preference shareholders receive a dividend at a level that is fixed, subject to the conditions of issue of the shares, and have priority over the ordinary shareholders if the company is wound up.

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La Sfera Co. was formed on July 1, 2014. The company reportedthe following summarized statement of financial position at July 1,2017:

	RM
Assets
Cash	472,000
Other assets	1,680,000
Total assets	2,152,000

Liabilities and Equity
Liabilities
Other liabilities	546,000
Ordinary dividend payable	35,000

Shareholdersâ equity
7% preference shares, 300,000 authorised, 50,000 issued	250,000
Ordinary share, 500,000 authorised, 250,000 issued	750,000
Retained earnings	571,000
Total liabilities and equity	2,152,000

The following transactions occurred during the financial yearbut have not been recorded:

July 1, 2016	Paid dividends payable to shareholders.
Aug 15, 2016	Issued 50,000 ordinary shares to the public for RM5 per share.The company incurred RM4, 000 on the costs of issuance ofshares.
Nov 23, 2016	Offered right issue to existing shareholders, with the right topurchase one shares for every 80 shares held. Market price on thedate was RM5. All offers were taken up.
Feb 1, 2017	Obtained a 6-month loan amounting RM 25,000 from JuneBank at 4%per year to expand the business.
Mar 7, 2017	Declared and distributed one-for-fifty share dividend toshareholders on record. Market value per share was RM6. The companyused its retained earnings for the purpose of giving bonusshare.
May 18, 2017	Declared cash dividend to ordinary shareholders of RM0.20 pershare, subject to approval at the forthcoming annual generalmeeting.
June 1, 2017	Issued 10% three-year bonds payable with a RM150, 000 par valueat the price of RM133, 540. The current market interest rate is12%.
June 30, 2017	Payment of cash dividend to ordinary shareholders has beenapproved. The money will be credited to ordinary shareholders inJuly 15, 2018.
June 30, 2017	Paid preference dividend.

Required:

Journalise the above transactions.

Prepare the statement of financial position as at December 31,2017.

silverpig236

Tem Ora Ltd supplied the following information on its shareholdersâ equity as at

30 June 2015.

Tem Ora Ltd Balance Sheet as at 30 June 2015 (extract)

Shareholdersâ equity	$	$
Capital (400,000 ordinary shares paid to $ 1.00)	400,000
Capital (100,000 7% preference shares paid to $2.00 each)	200,000
Retained earnings	165,000
Dividend equalisation reserve	150,000
Total shareholdersâ equity		915,000

Additional information:

Profit after tax for the year ended 30 June 2016 was $250,000;

On 29 July 2015, buildings were revalued and increased in value by $335,000.

On 7 August 2015, a bonus share issue was made; shareholders were given one share for every eight that they held. The bonus shares were funded from the asset revaluation reserve.

On 25^th June 2016, directors declared a final dividend on ordinary shares of $0.07 per share.

A decision to transfer $80,000 to the dividend equalisation reserve was made on 30 June 2016.

Required:

For the financial year ending 30 June 2016, prepare journal entries to record the above decisions.

jadellama35

For the year ending 30 June 2016, XYZ Ltd earns a profit aftertax of $1.05 million. Dividends on 400 000 convertible, cumulativepreference shares amount to $200 000. The preference dividends arenot treated as expenses in the accounts of Lennox Ltd (thepreference shares have been disclosed as equity in the statement offinancial position). As at 1 July 2015 there were 500 000 fullypaid ordinary shares. There were no additional share issues duringthe year.

As at 1 July 2015 there were also:

$250 000 in convertible debentures, which paid interest at arate of 10% per year, and which could be converted to 125 000ordinary shares, at the option of the debenture holder;

20 000 share options currently on issue, with an exercise priceof $2.00;

the 400 000 convertible, cumulative preference shares, whichwere issued in 2010 and are convertible into 120 000 ordinaryshares at the option of the preference shareholders;

Assume the tax rate is 30% and that the average market price forordinary shares during the year was $5

Calculate XYZ Ltdâs:

(a) basic EPS

(b) diluted EPS

ACC 312 Study Guide - Midterm Guide: Issued Shares

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