Shareholders Equity Essay

1397 Words Apr 5th, 2015 6 Pages
1. What is a share? (1 mark)

2. Identify two advantages of a private placement of shares as compared with a public issue. (1 mark)

3. The shareholders of Quinninup Ltd hold 25 000 A class ordinary shares, fully paid at $4.50 each. On 17 April 2012, the company directors voted to make a 1 for 5 rights offer to these shareholders. The additional shares were offered at $1.75 each, payable in full one month after acceptance.

The offer closed on 31 May 2012 with 90% of the shareholders accepting. Shares were duly allotted on that date and all monies were received when due.

Required
Prepare journal entries to record these events, show all workings. (2 marks)

4. Forrest Ltd has issued 10 000 5% cumulative preference shares. Explain the
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The company’s policy is to account for any buy backs by reducing the class of shares bought back to zero and any remaining balance to be allocated equally against the general reserve and retained earnings.

Required
Prepare the journal entry to record the buy back, show all workings. (2 marks)

15. Identify two events which can lead to an increase in the retained earnings account balance. (1 mark)

16. Why would a company engage an underwriter? (1 mark)

17. On 15 August 2012, Denmark Ltd issued a prospectus inviting applications to acquire 100 000 ordinary shares at $2.20 each, payable $1.10 on application and $1.10 on 31 August 2014. The offer was underwritten by Investsure Ltd for a commission fee of $6 750. The offer closed on 30 September 2012 with 115 000 applications having been received. Shares were allotted on 12 October 2012 on a first-come, first-serve basis. The underwriter was paid on 8 October 2012.

Required
Prepare journal entries to record the above events, show all workings. (4 Marks)

18. On 28 June 2012, the directors of Hopetoun Ltd voted to transfer $35 000 from the plant maintenance reserve to retained earnings.

Required
Prepare the journal entry to record the transfer. (1 Mark)

19. On 13 March 2012, Ravensthorpe Ltd issued a prospectus offering for sale 25 000 6% preference shares at $2.75 each, payable in full on application. The offer closed on 30 April 2012 with 19 700 applications having been received.
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