Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Rights issue The company is planning a big expansion project and requires capital to fund this planned expansion. The directors decided to source the funding

Rights issue
The company is planning a big expansion project and requires capital to fund this
planned expansion. The directors decided to source the funding by announcing a
rights offer to all the companys existing shareholders. The rights offer will be done at
one share for every five shares held and these shares are offered at R25 per share.
The company announced the rights offer on 5 June 2023 and the closing date was 30
June 2023. On the closing date of the rights offer, EAD (Pty) Ltd received a total of
175000 share applications from the public. The shares in terms of the rights offer were
issued on 15 July 2023 and the share issue cost amounted to R15200.
The directors further decided to underwrite the rights offer, the underwriting was done
by CBC Bank at an underwriters commission of 3%. CBC Bank will take up all shares
not subscribed for by the public.
All amounts relating to the rights offer were received on the closing date, 30 June
2023. All costs relating to the right issue were paid in cash on 31 July 2023.
On 1 February 2023, EAD (Pty) Ltd had an issued share capital of 1000000 shares
at R20 each, which were issued at incorporation of the company. The current rights
issue is the first new shares that will be issued other than the shares issued at
incorporation.
Dividends
EAD (Pty) Ltd declared a dividend on 15 February 2024. EAD (Pty) Ltd gave the
shareholders the option to receive either one new share worth R3 each or the cash
equivalent thereof. On the declaration date, the directors of EAD (Pty) Ltd estimated
that 90% of the shareholders would elect the share option.
The dividends were paid on 25 March 2024.
ANNEXURE I: FORMATIVE ASSESSMENT 2
100 HFAC231-1-Jan-Jun2024-FA2-CP-V2-05122023
REQUIRED:
2.1) With reference to the information under Rights issue, prepare the general
journal entries to account for the rights issue in the records of EAD (Pty) Ltd for
the 31 March 2024 financial year.
Journal dates are required.
Journal narrations are not required.
All amounts should be rounded to the nearest Rand.
Show all calculations and references clearly.
(18 marks)
2.2) With reference to the information under Dividends, assume that only 85% of
the shareholders elected the share option on the dividend payment date.
Prepare the general journal entries to account for the dividends declared on 15
February 2024, as well as the payment on 25 March 2024. Note: Ensure to
take into consideration the shares in terms of the rights issue.
(15 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurship

Authors: Andrew Zacharakis, William D Bygrave

5th Edition

1119563097, 9781119563099

More Books

Students also viewed these Accounting questions

Question

Describe the roots of positive psychology.

Answered: 1 week ago

Question

handy home sells windows ( 2 0 % of sales )

Answered: 1 week ago