Unit 1: June 2012, Question #2 (c)

No. 2(c): Below are the necessary journal entries to record the issue of ordinary shares by Fancy Beachwear Inc. over the period 2009-2011. Please note that the journal entries were not a requirement of this question, but they are listed purely for teaching purposes.

Explanations:
*The par value of the share is $5, however the shareholders paid $6 per share when the 40,000 share were issued. The $1 in excess of the par value is the premium paid on the purchase of the shares.

**The number of shares in the rights issue is calculated as 40,000/2 = 20,000 shares, since there were 40,000 shares in issue at that time and the ratio used for the rights issue of shares was 1 share for every two shares in issue.
 
*** The number of shares in the bonus issue is calculated as (40,000 + 20,000)/1 = 60,000, since there were 60,000 shares in issue at that time of the bonus issue and the ratio used for the bonus issue of shares was 1 share for every share in issue.

The diagram below shows the Ordinary Share Account of Fancy Beachwear Inc. over the period 2009 - 2011. Again please note that this ledger account was not a requirement of this question, but it is listed for teaching purposes.

The table below shows the Retained Earnings carried forward the periods 2009 and 2010 so that the
Retained Earnings at 31st December 2011 can be determined.

Finally the Shareholder Equity section of Fancy Beachwear Inc. at 31st December, 2011 can be prepared as all the necessary balances have been determined.

I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to comment below. Best of luck!