Solution of Corporate Accounting Problem


Hi Kumar,

I am a student taking accounting as my major program of studies in which I really interest in, however today I am working on this question and get stuck with it.

So could you please help me solve this problem as soon as possible....?


Tumut Ltd’s statement of financial Position as at 30th June 2009, shows the company to have issued share capital of 200,000 ordinary shares, par value $0.50, issue price $0.60.The following events take place during the following seven months


1. 1 July A disclosure document invites application for 60 000 preference shares, par value $1, with an issue price of $1.20, payable 70c on application and 50c on allotment.

2. 31 July Applications are received for 95 000 preference shares, together with correct application monies.

3. 1 Aug The directors resolve to reject the last received applications for 5000 shares, and for the remainder to allot shares on the basis of two shares for every three applied for, surplus application monies being taken to the allotment.

4. 15 Aug All outstanding allotment monies are received

5. 7 Sept The directors allot 10 000 preference shares in an unregulated issue. The price received by the company on the same day is $13 000.

6. 1 Nov The directors advise members that a rights issue of ordinary shares will be allotted on 1 December. Terms of the issue will be the right to purchase one new fully paid share at a price of $0.70 for every four shares already held. The issue is non-renounceable. Acceptances must be communicated to the company and paid in full by 30 November.

7. 1 Dec The directors allot 45000 ordinary shares in the rights issue.

8. 15 Dec The 5000 ordinary shares that were not taken up in the rights issue are placed privately through an unregulated offer for a total of $7300.


9. 1 Jan Tumut Ltd issued a prospectus inviting subscriptions from the general public for 50000 ordinary shares at an issue price of $0.80 payable $0.30 an application and $0.50 on allotment, by 15 January

10. 15 Jan Applications for 80 000 shares are received. Applications for 20000 shares submit the issue price in full. The remaining applications are received with the sum payable on allotment only.

11. 18 Jan The directors of Tumut resolved to make a full allotment of 20000 shares to applicants who have submitted the issue purchase price in full. The balance of the issue is to be made to applicants on a pro rata basis, with surplus application monies received applied to the allotment and / or returned to investors as appropriate.

12. 31 Jan Any Allotment monies due are received


(a) General journal entries to record the above data for Tumut Ltd.

(b) Prepare an extract from the statement of financial position for Tumut Ltd, showing the owners equity accounts as at 1 February 2010.

Thanks so much and looking forward for your response



Dear Student,

This question is taken from corporate accounting and you should know basics of pref. share, right share, procedure of issue of shares, pro rata basis of allotment and adjustment of excess application money before solving above questions. I think, you will study its reference in  before solving above question. Now, I come to your question and am writing solution of it.

(A) General Journal Entries to record the above data for Tumut Ltd.

1. 1 July - No journal entry because no transaction happened on 1 July 2009

2. 31st July -

Bank Account Debit $ 66500

Prof. Share Application Account Credit $ 66500

(For share application money received = 95000 X 70 Cents = $66500)

3. 1 Aug. 2009

Actual received applications for pref. shares = 95000, it means that people want to purchase 95000 shares but company have only 6000 shares, so company’s directed decided to reject 5000 and rest adjusted with allotment money.

Table for application money adjustment

a) Refund of application money

Pref. share application account Debit $ 3500

Bank Account Credit $ 3500

(For application amount refunded on rejected application 5000 X .70 = $ 3500)

b) Entry for transferring application money to preference share capital account

Pref. share application account Debit $ 42000

Pref. Share Capital Account Credit $ 42000

4. 15 Aug.

a) Entry for due amount of preference share allotment

Pref. share allotment account debit $ 30000

Pref. share capital account credit $ 18000

Pref. share premium account credit $ 12000

b) Entry for Adjustment of application money with allotment money

Pref. share application account debit $ 21000

Pref. Share allotment account credit $ 21000

c) Entry for balance amount of allotment money received

Bank account Debit $ 9000

Pref. Share allotment account Credit $ 9000

5. 7 Sept

a) Entry for amount received of unregulated issue’s allotment

Bank Account Debit $ 13000

Pref. share capital account Credit $ 13000

6. 1 Nov No entry

7. 1 Dec. Entry for issue of right shares to existing share holders

Bank Account Debit $ 31500

Equity Share capital account $ 31500

8. 15 Dec Entry for issue not to be taken by existing shareholders

Bank Account Debit $ 7300

Equity share capital account $ 7300

9. 1 Jan 2010 No journal entry

10. 15 Jan.

Table for adjustment of application money

A) Entry for received all money at the time of applying for 20000 equity shares

Bank Account Debit $ 16000

Equity share capital account Credit $ 16000

(20000 X 0.80 $)

B) Entry for balance 60000 shares application money received

Bank Account Debit $ 18000

Equity share application account Credit $ 18000

C) Entry for transferring application money to equity share capital account

Equity share application account Debit $ 9000

Equity share capital account Credit $ 9000

D) Entry for allotment money due

Equity share allotment account Debit $ 15000

Equity share capital account Credit $ 15000

E) 18 Jan Entry for adjusting of excess application money with allotment money

Equity share application account Debit $ 9000

Equity share allotment account Credit $ 9000

F) 31 Jan Entry for Rest amount of allotment paid by equity shareholder to company

Bank Account Debit $ 6000

Equity share allotment account Credit $ 6000

In second part, you have to make balance sheet in which you will add fresh equity share capital in old equity share capital and also show pref. share capital in liability side. I hope, you can solve second part yourself, if you face any problem, please contact me again at  or add me google talk with same id. After this, I will guide you personally.


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Accounting Education: Solution of Corporate Accounting Problem
Solution of Corporate Accounting Problem
Accounting Education
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