Answer:
RCK Ltd
Journal Entries:
July 2018:
Debit Stock Application Account with $90,000,000
Credit Common Stock with $90,000,000
To record issue of prospectus for 90 million shares at $1 per share on application.
Debit Cash Account with $108,000,000
Credit Stock Application Account with $90,000,000
Credit Stock Allotment Account with $18,000,000
To record receipt of subscription for 108 million shares.
August 15:
Debit Stock Allotment Account with $90,000,000
Credit Common Stock with $90,000,000
To record 90 million shares at $1 on allotment.
September 20:
Debit Cash Account with $54,000,000
Credit Stock Allotment with $54,000,000
To record receipt of allotment money.
September 30:
Debit Forfeited Stock Account with $18,000,000
Credit Stock Allotment Account with $18,000,000
To record the forfeiture of 18 million shares on allotment.
October 15:
Debit Cash Account with $36,000,000
Credit Forfeited Stock Account with $36,000,000
To record the resale of forfeited shares.
October 20:
Debit Forfeited Stock Account with $18,000,000
Credit Cash Account with $18,000,000
To record the refund of forfeited shares.
Explanation:
a) When shares are issued, the application money is debited to the Stock Application Account while the corresponding credit goes to the (Common) Stock Account.
b) When the application money is received, the Cash Account is debited with the amount received and a credit to the Stock Application Account to close the account. If oversubscription is involved the difference is transferred to the allotment account for part settlement of allotment money.
c) The forfeiture of shares means that the potential shareholders failed to pay up the balance due on their allotted shares. The shareholders therefore lose the balance they have already contributed.
d) The reissue of forfeited shares is done in such a way that the difference is received to balance off the forfeited shares account. However, management may decide to receive the shares at par and refund the forfeited shares balance.
