ACCT3103 - Intermediate Financial Accounting II

Assignment 2 - Solutions

Question 1
1. Issuance of bonds
January 1, 2021
Dr. Cash (102% x $8 million) 8,160,000
Dr. Discount on Bond payable 96,000
Cr. Bond payable 8,000,000
Cr. Ordinary share warrants 256,000
($8 x $8 million x 4 warrants /$1,000)

2. Exercise of warrants
March 1, 2023
Dr. Cash (25% x $8 million x 4 warrants /$1,000 x $28) 224,000
Dr. Ordinary share warrants ($256,000 x 25%) 64,000
Cr. Share capital – ordinary (bal.fig) 288,000
Question 2

Issuance of shares for cash

Dr. Cash (1,000,000 x $20) 20,000,000
Cr. Share Capital -ordinary 20,000,000

1. Issuance of shares for non-cash consideration

Dr. Investment in Soda’s Shares 330,000
Cr. Share Capital –ordinary (15,000 x $22) 330,000

2. Property dividend
Dr. Investment in Soda’s Shares 90,000
Cr. Gain on appreciation of Securities 90,000
Dr. Dividends (or Retained Profits) 420,000
Cr. Investment in Soda’s Shares 420,000

Or (alternative)
Dr. Dividends (or Retained Profits) (60,000 x $7) 420,000
Cr. Gain on appreciation of Securities 90,000
Cr. Investment in Soda’s Shares 330,000
Question 3
King Ltd.
Statement of changes in shareholders’ equity
For the year ended December 31, 2021
Preference share Ordinary share Retained Total shareholders’
capital capital profits equity
Dec 31, 2020 $120,000 $187,000 $410,000 $717,000

(a) Issuance of 62,500 62,500

ordinary shares
(b) Repurchase of (21,000) (21,000)
preference share
(c) Bonus issue 82,000 (82,000) 0

(d) Net income 68,200 68,200

Dec 31, 2021 99,000 331,500 396,200 826,700

King Ltd.
Statement of shareholders’ equity
December 31, 2021
$
Shareholders’ equity
Preference share capital (2,600 shares) 99,000
Ordinary share capital (13,000 shares) 331,500
Retained profits 396,200
Total shareholders’ equity 826,700

Workings:
No of preference shares outstanding = 3,100- 500 = 2,600
No of ordinary shares outstanding = 7,500+ 2,500 + 3,000 = 13,000