Question 1 (30 marks)

Morning Star Ltd was registered on 1 July 2020, as a company with a constitution limiting the shares that could be offered to 5 000 000 Ordinary shares (including all classes) and 2 000 000 preference shares. The company issued a prospectus dated 1 July 2020 inviting the public to apply for 2 000 000 Ordinary A class shares at $5.00 per share. The terms of the shares on issue are $3.00 on application, $1.50 on allotment and a future call of $0.50 with date to be determined.

If the issue is oversubscribed the directors will make a pro-rata issue of shares and the excess application money will be applied to allotment and calls before any refunds will be given.

On 30 July, applications for the Ordinary A class shares closed. Applications for 2 500 000 shares in total had been received with applicants for 500 000 shares paying the full price and 2 000 000 shares paying only the application fee.

On 1 August, the Ordinary A class shares were allotted on a pro-rate basis with all allotment money owed paid by the 30 August.

The company paid share issue costs of $11,000 for the issuing of Ordinary A shares on 1 September. The share issue costs related to legal expenses associated with the share issue and fees associated with the drafting and advertising of the prospectus and share issue.

The call on the Ordinary A shares was made on 15 Septmber and due by 30 September. All call money was received except for the call on 200 000 shares. The directors met and forfeited the shares on 15 October. On 30 October, the forfeited shares were reissued at $4.40 fully paid to

$5.00. Costs associated with reissuing the forfeited shares totalled $3,500. The remaining money was refunded to the defaulting shareholders on 15 November.

On 1 January 2021, Morning Star Ltd issued via a private placement semi-annual coupon debentures (which pay interest every 6 months) with a nominal value of $900,000. The debenture term is four years and the coupon rate is 2% per year. The market requires a rate of return of 4% per year. The money came in and the debentures were allotted on the same date. The first interest payment will occur on 30 June 2021.

On the same day (1 January), Monring Star issued 500 000 options for class A shares with an exercise price of $4.00 each. It costs $1.00 per option. These options expires on 30 June 2021.

The company issued via a private placement 300 000 redeemable preference shares of $3.50 each on 31 March 2021. The shares offer a fixed dividend of 6 per cent per annum. The shares will later be redeemed to non-voting Ordinary Class B shares at the choice of the shareholders on 30 June 2022.

By 30 June 2021, 470 000 options were exercised. The remaining options are lapsed.

On the same day (30 June), 200 000 Ordinary Class A shares were bought back by Morning Star for $5.50 each. The original issue price for these share were at $5.00 per share.

Required:

(a) Prepare journal entries for the above transactions for the year ended 30 June 2021. Note: the entries should be in strict date order of the underlying event. (24.5 marks)

(b) Prepare an extract of the statement of change in equity to show the composition and movement of the ordinary shares account of Morning Star Ltd as at 30 June 2021 and 30 June 2022. Please provide the opening balance, change in share capital and closing balance of each classes of shares. (5.5 marks)