Unit 1: June 2012, Question #1

No. 2(c): Below are the related explanations and the journal entries with narratives to record the transactions of Bernice Inc.
Note 1:
The par value of the share is $10, however the 15,000 shares were exchanged for assets worth $240,000 therefore this means that they were issued at a value of $16 per share, ($240,000/1500 shares). The excess of $6, ($16-$6), is the par value is the share’s premium.
Notes 2 and 3:
Bernice Inc purchased 35% of the outstanding shares of Fly Corporation and Fly Corporation paid out a total cash dividend of $120,000. Therefore Bernice Inc received 35% of $120,000 = $42,000.
Note 4:
The loan interest due is calculated at $80,000 x 10% x 3/12 since only three (3) months interest has been accrued.
Note 5:
The value of the stock dividend paid is $10 x 9,000 shares.

Now that all the necessary workings has been done the journal entries can be prepared.

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