Question

Rum Ltd had 500,000 ordinary shares and 100,000 preference shares in issue at 31 December 2017. The annual preference dividend is $0.10 per share.

As business grows, Rum Ltd needed more working capital and decided to issue another 500,000 ordinary shares at $1.20 each. All monies
had to be fully paid on application by 1 March 2018. Applications for 600,000 ordinary shares were received. Shares were allotted on 20 March 2018 on a pro-rated basis, and the excess application monies were returned to unsuccessful applicants on 22 March 2018.

Rum Ltd declared a total dividend of $60,000 on 30 September 2018.

Required:
Prepare journal entries (with narratives) to record the above transactions.

Answer 1

JOURNAL
Date	Account Title & Explanation	Post Ref.	Debit ($)	Credit ($)
1-Mar	Bank		720,000
	Share Application and Allotment			720,000
	(To record the share application money received on 600,000 shares @ $1.20 each)
20-Mar	Share Application and Allotment		600,000
	Common Stock			600,000
	(To record the allotment of shares and refund of excess application money received)
22-Mar	Share Application and Allotment		120,000
	Bank			120,000
	(To record the application money refunded.
30-Sep	Retained Earnings		60,000
	Dividends Payable			60,000
	(To record the declaration of the total dividend)