Question 1: Company Operations - Financing (21 Marks) The equity of Herbal Ltd as at 1 July 2020 comprises the following: Herbal Ltd Shareholders equity as at 1 July 2020 Share Capital 320 000 ordinary Class 1 shares, issued at $4, fully paid= $1 280 000 240 000 ordinary Class 2 shares, issued at $4, paid to $2.40= $576 000 $1 856 000 Calls in advance (Class 2 shares, at $1.60) = $25 600 Retained earnings= $508 800

Total Shareholders Equity $2 390 400

The following transactions occurred during the year ended 30 June 2021: 1 November 2020= A 1-for-5 renounceable rights offer was made to ordinary Class 1 shareholders at an issue price of $3.80 per share. The offers expiry date is 30 November 2020. The rights issue is underwritten at a commission of $4 800.

30 November 2020= Holders of 256 000 shares accept the rights offer, with other rights being renounced to the underwriter. Ordinary Class 1 shares are issued and money received.

20 December 2020= The underwriting commission is paid.

1 March 2021=The directors transfer $56 000 from Retained earnings to a General reserve account.

30 April 2021=The final call, due by 15 May 2021, is made on the partly paid shares. All call money is received by this date, except for that due on 12 000 shares.

31 May 2021= The shares on which the final call was unpaid are forfeited.

10 June 2021= The forfeited shares are reissued, credited as paid to $4, for $3.60 cash per share. The balance of the Forfeited Shares account will be refunded to the former shareholders on 27 June.

27 June 2021= Pay refund to former holders of forfeited shares. Required: a) Prepare general journal entries to record the above transactions. (19 marks) b) Prepare the equity section of Herbals statement of financial position (Shareholders equity part only use the shareholders equity template below) as at 30 June 2021 once the above transactions have been recorded. (2 marks) Note: Show all your workings. Journal narrations are required.