Lecture Notes Solutions Lecture 8 Topic 8

Chapter 10 Reporting and Analysing Equity (Companies)

SHARE ISSUES
Accounting for the private issue of shares
Example:
Hydro-Slide Ltd issues 1,000 shares for $1 each, payable in cash, to a private investor.
Journal entry to record private placement:
Cash at Bank
Share Capital
To record issue of 1,000 shares at $1 each

1,000
1,000

Accounting for the public issue of shares

Lecture Illustration 1
Hydro-Slide Ltd invited the public to subscribe for 10,000 ordinary shares at $1.00 per share.
The terms of the issue are:
$0.50 per share is payable on application by 30 September 2013
$0.20 per share is payable on allotment by 31 October 2013.
Applications are received for 10,000 shares.
The directors allot 10,000 shares on 1 October 2013 and all money due on allotment is received.
Sept 30

Oct 1

Oct 31

Cash Trust
Application
Receipt of application money for 10,000 shares at $0.50
per share

5,000

Application
Share Capital
Allotment of shares to applicants

5,000

Cash at Bank
Cash Trust
Transfer of application money to the companys own bank
account on allotment of the shares

5,000

Allotment
Share Capital
Amounts owing on allotment of shares

2,000

Cash at Bank
Allotment
Receipt of monies due on allotment (10,000 x $0.20)

2,000

Financial Accounting
Lecture Illustration Solutions Topic 8
Reprinted with permission of John Wiley & Sons, Inc.

5,000

5,000

5,000

2,000

2,000

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Cash dividends
Example:
On 1 December 2013, the directors of Media General Ltd declare a cash dividend of $0.50
per share on 100,000 shares. The dividend was paid on 20 January.
Journal entry when dividend is declared:
Dec 1

Retained Earnings
Dividends Payable
Declaration of dividend (100,000 x $0.50)

50,000
50,000

Journal entry when dividend is paid:

Jan 20

Dividends Payable
Cash at Bank
Payment of cash dividend

50,000
50,000

Share dividends
Example:
On 1 December Hawkes Bay Ltd has a balance of $30,000 in Retained Earnings and
declares a 10% share dividend on its 50,000 shares. The current market price is $15 per
share and directors have decided that this should be the value assigned to the bonus
shares.
The number of shares to be issued is 5,000 (10% of 50,000), and the total amount to be
debited to Retained Earnings is $75,000 (5,000 x $15). The shares were issued on
January 20.
Journal entry when dividend is declared:
Dec 1

Retained Earnings
Share Dividends Payable
Declaration of 10% share dividend

75,000
75,000

Journal entry when dividend is paid:

Jan 20

Share Dividends Payable

Share Capital
To record the issue of 5,000 $15 shares as a
share dividend

Financial Accounting
Lecture Illustration Solutions Topic 8
Reprinted with permission of John Wiley & Sons, Inc.

75,000
75,000

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