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

3/11/2018

4 Comments

 
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.
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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.
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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.

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Finally the Shareholder Equity section of Fancy Beachwear Inc. at 31st December, 2011 can be prepared as all the necessary balances have been determined.
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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!
4 Comments
Selina
5/23/2019 01:05:57 pm

how did you get the retained earning b/f in your statement of comprehensive affairs?

Reply
Krystal
5/23/2019 08:01:59 pm

Hi Selina!

The retained earnings brought forward in any given year is always equal to the previous year's ending balance.

Therefore the retained earnings b/f of $78,000 in 2010 is the closing balance of $78,000 in 2009.

Similarly, the retained earnings b/f of $484,250 in 2011 is the closing balance of $484,250 in 2010.

Think about it this way; if you closed on 31st December, 2009 with $78,000 in retained earnings, then on January 1st 2010 you should open with a balance of $78,000.

I hope this helps and good luck!

Reply
Jess
2/8/2021 06:14:48 am

Will Unit 1 2012 Question 3 be posted ?

Reply
Krystal
2/24/2021 07:14:45 pm

Hi Jess,

Yes, it will be posted over the next couple days.

So look out for it, okay!

Reply

Your comment will be posted after it is approved.


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    Author

    The author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor.

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