PRACTICAL QUESTION Merflow Ltd invited applications for 7 million equity shares of $2.75 each payable as...

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Accounting

PRACTICAL QUESTION

Merflow Ltd invited applications for 7 million equity shares of$2.75 each payable as follows:
? $0.50 per share on application
? $1.50 per share on allotment
? $0.75 per share on final call

On 1/8/2016, applications were received for 35,000,000 millionshares (that is, 28,000,000 million in excess of the number ofshares on offer).

Merflow’s constitution allows the company to apply any excessmonies received to satisfy future amounts payable on allotment andon call. Therefore, the board of directors decide to make a 1:5pro-rata allotment of the shares applied for to every applicant.This means that applicants received one share for every 5 theyapplied for.

The shares were issued on 1/9/2016. The call monies were payable on9/1/2017.

The final call was payable on 9/1/2017. However, shareholders of500,000 partly paid shares (i.e. until this date shareholders havepaid $2.00 per share) failed to pay by the due date for the finalcall.

The forfeited partly paid shares were auctioned to existingshareholders on 1/3/2017. The 500,000 shares were taken up at $2.00per share.

Any remaining funds after re-issuance of the forfeited shares werereturned to the original shareholders on 1/4/2017.

Required:
6) Journalize the forfeiture of the unpaid shares.
7) Record the receipt of payment for the auctioned shares.

8) Record the refund paid to the defaulting shareholders.

Answer & Explanation Solved by verified expert

4.2 Ratings (494 Votes)

Answer 6 912017 Equity Share Capital Ac Dr 1375000 To Equity Share First Final Call Ac 375000 To Forfeited Shares Ac 1000000 Forfeited See Answer

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PRACTICAL QUESTION Merflow Ltd invited applications for 7 million equity shares of$2.75 each payable as follows:? $0.50 per share on application? $1.50 per share on allotment? $0.75 per share on final callOn 1/8/2016, applications were received for 35,000,000 millionshares (that is, 28,000,000 million in excess of the number ofshares on offer).Merflow’s constitution allows the company to apply any excessmonies received to satisfy future amounts payable on allotment andon call. Therefore, the board of directors decide to make a 1:5pro-rata allotment of the shares applied for to every applicant.This means that applicants received one share for every 5 theyapplied for.The shares were issued on 1/9/2016. The call monies were payable on9/1/2017.The final call was payable on 9/1/2017. However, shareholders of500,000 partly paid shares (i.e. until this date shareholders havepaid $2.00 per share) failed to pay by the due date for the finalcall.The forfeited partly paid shares were auctioned to existingshareholders on 1/3/2017. The 500,000 shares were taken up at $2.00per share.Any remaining funds after re-issuance of the forfeited shares werereturned to the original shareholders on 1/4/2017.Required:6) Journalize the forfeiture of the unpaid shares.7) Record the receipt of payment for the auctioned shares.8) Record the refund paid to the defaulting shareholders.