Profit or Loss Prior to Incorporation

Question 1 A company was incorporated on 30 April in order to acquire the business of a private firm as of 1 January. The company closes its books on 31 December. The gross profit for the whole period was calculated at $120,000. The sales for the month of August were 3 times the average, 2 times the average for January and July, 1.5 times for October and December, and it 0.5 times for November. Es…

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Underwriting of Shares: Questions and Answers

Underwriting of Shares Question 1: Partial Underwriting A company issued 100,000 shares valued at $100 per share. The shares were underwritten as follows: X: 30,000 shares Y: 50,000 shares The public applied for 70,000 shares. Required: Determine the liability of X, Y, and the company. Answer Marked applications are not given in the problem. Therefore, applications are credited to underwriters, in…

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Benefits of Short-Term Loans

Short-Term Loans: Definition A short-term loan is a loan that the borrower needs to pay back, along with interest, in a relatively short period, usually in a year. The borrower returns the amount of the loan to the lender over the course of months rather than years. Short-Term Loans: Requirements If you are in urgent need of funds to finance a purchase, you can easily apply for a loan either onlin…

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Issue and Redemption of Debentures: Practical Problems and Solutions

Issue of Debentures Journal Entries Practical Problem 1 A company issued 1,000 10% debentures of $100 each at par, with $40 payable on application and the balance on allotment. The public applied for 800 debentures and the applications were accepted. All money was received. Required: Show the journal entries. Solution Issue of Debentures for Non-cash Considerations Practical Problem 2 X Ltd. acqui…

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Redemption of Preference Shares: Practical Problems and Solutions

Problem 1: Redemption of Preference Shares at Premium On 1 July 2000, a limited company issued 10,000 redeemable preference shares valued at $10 per share. The shares were redeemable at a premium of 10%. Two-fifths of the company’s issue was redeemed out of profits on 10 January 2004. On 20 January 2004, the company issued 20,000 equity shares at $10 each at a premium of $4 per share. Out of the p…

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Forfeiture of Shares: Practical Problems and Solutions

Forfeiture of Shares at Par Practical Problem 1 A company forfeits 100 shares of $10 each fully called upon. The shareholder has failed to pay the first call money of $3 per share and the second and final Call Money of $3 per share. Pass the journal entry. Solution Forfeiture of Shares at a Premium Practical Problem 2 A company forfeits 100 shares of $10 each issued at $11 per share. The premium w…

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Calls in Arrears and Calls in Advance

Calls in Arrears and Calls in AdvanceCalls in Arrears Definition If any amount that is called in respect of a share is not paid before or on the date fixed for payment, such an amount is known as calls in arrears. Explanation The amount may be called by a company either as allotment money or call money. Thus, any default arising due to the failure to send the call money is known as calls in arrear…

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Issue of Shares at Premium and Discount – Practical Problems With Answers

Problem 1 Asian Ltd. issued 5,000 preference shares of $10 each at a premium of $4 per share. $1 per share was payable on application and $6 per share on allotment, including the premium; as well as 3 per share on first call and $4 per share on final call. The shares were all subscribed and the money was duly received. Give the journal and cash book entries and balance sheet. Solution Journal Entr…

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Issue of Shares Practical Problems and Solutions

Question 1: Issue of Shares at Par – Journal Shipping Limited issued 10,000 equity shares of $25 each, payable $5 on application, $10 on allotment, and $10 on first and final call. All the shares are subscribed and the amount duly received. Pass the journal entries. Solution Journal Entries Question 2: Issue of Shares at Par – Journal and Cash Book M Limited issued 10,000 equity shares of $10 each…

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Corporation Definition

A corporation is a separate body, authorized by law, owned by one or more persons, and having its own rights, privileges, and obligations distinct from those of its owner(s). In effect, under the Constitution of the United States, a corporation is a separate legal entity with a continuous life that has rights and obligations similar to those of an individual. This means that a corporation can sue…

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