The company makes a 1-for-4 rights offer to its ‘B’ ordinary shareholders. The rights are renounceable and allow holders to obtain ‘B’ ordinary shares for $3.50 per share, payable in full on application

Assignment Question TACC505 Term 5

Shares Issue Question 20 marks The share capital of Cedar Ltd on 30 June 2015 was: Share capital: 140,000 ‘A’ ordinary shares issued at $4, paid to $2.50 $350,000 60,000 ‘B’ ordinary shares issued at $3, fully paid $180,000 $530,000

Required

Prepare journal entries to record the following transactions in the records of Cedar Ltd. Show dates and calculations for all journal entries.

01 Nov 2017 The company makes a 1-for-4 rights offer to its ‘B’ ordinary shareholders. The rights are renounceable and allow holders to obtain ‘B’ ordinary shares for $3.50 per share, payable in full on application.

30 Nov 2017 The holders of 40 000 ‘B’ ordinary shares accept the rights offer by the expiry date. The shares are duly allotted and all money is received.

16 Jan 2018 A call of $2.00 per share is made on all ‘A’ ordinary shares. All call money except that owing by the holder of 10 000 shares is received by 31 January.

05 Feb 2018 Shares on which calls are unpaid are forfeited and cancelled, as per the company’s constitution.

17 Mar 2016 To assist with cash flow difficulties, the company issued a prospectus inviting offers for 80 000 options to acquire ‘A’ ordinary shares at an issue price of $1.20 per option, payable in full on application. Each option, exercisable on 31 December 2017, allows the holder to acquire one ‘A’ ordinary share for $3.60.

31 Mar 2016 Offers had been received for 60 000 options and these were duly allotted.

31 Dec 2017 The holders of 45 000 options exercised their options and 45 000 ‘A’ ordinary shares were allotted. The remaining options lapsed. All 2 money was received. Costs of issuing the shares, $3400, were paid on 31 January 2018.

Income and Deferred Tax Question 20 marks

RAINBOW Ltd reported a profit before tax for the year to 30 June 2017 of $450 000. The company’s statements of financial position include assets and liabilities as follows: 2017 2016 Accounts receivable $ 255 000 $ 200 000 Allowance for doubtful debts (25 000) (15 000) Building – at cost 500 000 500 000 Accumulated depreciation (190 000) (130 000) Provision for Warranty 30 000 50 000 Provision for annual leave 40 000 80 000 Deferred tax asset ? 20 200 Deferred tax liability ? 75 000 (a) Expenses included in profit for the year to 30 June 2017 are as follows: Political Donation expense $30 000 Depreciation expense for building $60 000 Doubtful debts expense $50 000 Annual leave expense $44 000 Warranty expense $55 000 (b)Accumulated depreciation on Building for tax purposes is $300 000 on 30 June 2017 and $180 000 on 30 June 2016. There have been no acquisitions or disposals of building during the current year. (c) The corporate tax rate is 30%. Required 1. Complete the current tax worksheet (8 marks) and 2. deferred tax worksheets (8 marks) of RAINBOW Ltd and 3. prepare the tax journal entries for 30 June 2017. (4 marks)