Exercise 1 - Debt Financing versus Equity Financing Donkey Ltd's equity is as follows: Share capital $5 000 000 Retained earnings and reserves 2 000 000 Equity $7 000 000 Donkey Ltd plans to expand its operations by establishing a branch in Thailand. The new branch will cost $3.5 million. Expected profit before tax and interest when the new branch is operational is $2.2 million. The tax rate is 30%. Donkey Ltd is considering two financing alternatives: 1. Borrow $3.5 million at 8% interest. 2. Issue 100 000 $35 shares. Required Which funding alternative yields the higher return on equity? What other factors should be considered?

Sport's Field Ltd was registered on 31 January 2019. It invited the public to subscribe to the issue of 35 000 ordinary shares for $1 per share: $0.60 due on application, $0.30 due on allotment and the balance due on call. Jan. 10 Prospectus issued. Mar. 1 Received applications for 35 000 shares. Mar. 2 Allotted 35 000 ordinary shares. Mar. 31 All allotment money received. Nov. 1 Remaining capital called. Nov. 30 All money due on call is received. Required a. Journalise the transactions. b. Post to the equity accounts (use T accounts). c. What is the share capital of Sport's Field Ltd at 1 December?

On 1 January 2019, Rake Ltd had equity accounts as follows. Share capital (60 000 shares issued for $30 each) $1 800 000 General reserve 250 000 Retained earnings 900 000 During the year, the following transactions occurred. Feb. 1 Declared a $0.60 cash dividend per share to shareholders, payable on 1 March. Mar. 1 Paid the dividend declared in February. July 1 Declared a 10% share dividend to shareholders, distributable on 31 July. On 1 July the market price of the shares was $40 per share and this was determined to be the amount at which the dividend shares would be issued. July 31 Issued the shares for the share dividend. Dec. 1 Declared a cash dividend of $0.50 per share on 15 December, payable on 5 January 2020. Required a. Journalise the transactions. b. Enter the beginning balances and post the entries to the equity T accounts. c. Prepare the equity section of Rake Ltd's statement of financial position as at 31 December