- This topic has 14 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Hi Mike,
I am really confused with this question, specifically the agency transaction working and the dividend working.
Also is it possible you can explain to me where the cash coupon paid (2500) came from in the loan note working and also why the property cost is depreciated as opposed to the accumulated property cost.
I hope i don’t need to type up the question as it is very long!
Thanks
This had better be a past exam question!
Give me the exam reference please, hopefully!
Even the financial year end of the entity would possibly help
Hi Mike, yes it is, I believe it is from June 2014. The year end is 31 March 20X4.Hope this helps!
Thanks!
1st thing tomorrow – it’s past my bedtime now
Ok, the agency transaction
We sold for $20 some goods that weren’t ours and we earned a commission income of $2 on that sale
So we owe the principal $18 and we have now paid $15 of that
The double entry that we HAVE effected is:
Dr Cash $20
Cr Revenue $20Dr Cost of sales $15
Cr Cash $15The double entry that we SHOULD HAVE effected is:
Dr Cash $20
Cr Principal $18
Cr Commission Income $2Dr Principal $15
Cr Cash $15Leaving us with a liability to the principal of $3
To get from what we HAVE done to what we SHOULD HAVE done (2 ways to do this – either cancel the bad entries and then put through the good ones, or)
Dr Revenue $20 (takes it out of Revenue)
Cr Commission Income $2 (records the commission income!)
Cr Cost of sales $15 (taking it out from where it has been entered)
Cr Liabilities $3 (the amount still owed to the Principal)Property cost?
It’s a 20 year life – straight line depreciation based on cost
“20-year leased property at cost”
What’s 5% of 50?
Hi Mike,
Thanks for this, could you just explain how you got the ‘what we should have done part”? I just don’t understand why we debit revenue? I assume it is just to reverse the credit entry of $20?
Also, I’m sorry but could you take me through the ”dividend paid” working?
Thanks
“The double entry that we SHOULD HAVE effected is:
Dr Cash $20
Cr Principal $18
Cr Commission Income $2Dr Principal $15
Cr Cash $15”There’s no “debit revenue” in “What we should have done”
Yes, I’m sorry too – it means I’m going to have to call up the question again!
🙁
There are %46,000 worth of Equity shares in issue AFTER the 2 for 5 rights issue
That means that before the rights issue, there must have been $40,000 worth of 25 cent equity shares in issue because a 2 for 5 issue added on to $40,000 worth means an additional 40/5 x 2 = $16,000 worth additional giving us the $56,000 in issue per the question
Number of shares in issue before the rights issue = 40,000 x 4 = 160,000
Number of shares in issue after the rights issue = 56,000 x 4 = 224,000Dividend per share before the rights issue was 4 cents = $6,400
and dividend per share after the rights issue was 2 cents = $4,480Giving total dividends for the year of $10,880 and loan interest of $13,380 – $10,880 = $2,500
OK?
Sorry Mike, this may sound like a stupid question but how do you get 46,000 with the rights issue?
Also, why de we multiply the number of shares by 4?
“There are %46,000 worth of Equity shares …”
Double misprint, sorry
That should be $56,000
“Also, why de we multiply the number of shares by 4?”
The shares have a nominal value of 25 cents so, for every $ there are 4 shares
“Also, I am not sure how you got 40,000 from”
$56,000 after the 2 for 5 rights
Therefore before the rights there must have been $56,000 / 7 x 5 = $40,000 worth of shares with a 25 cent nominal vale per share = 160,000 shares
Better?
If there’s a 2 for 5 rights issue, that means that for every 5 shares that you used to own, you now own 7
Say you started with 5 shares and there was a 2 for 5 bonus / rights issue
How many shares do you now own?
You’ve just received an additional 2 shares so now you have 7
OK. Now you go to your grandma and say “Granny, I have 7 shares in OpenTuition because they’ve just had a 2 for 5 rights issue. Can you tell me how many shares I had before that rights issue?”
And your grandma looks totally bewildered so, like Dynamo the magician you say “Gran, to find the number of shares that I owned before the rights issue, all I have to do is simply divide by the 7 shares that I have now and multiply by the 5 that I held before.
Now, Gran, can you tell me the answer to this? If I now hold 763 shares in OpenTuition, how many did I own before the rights issue?” and Gran, quick as a flash, says “545! You can’t faze me you young whipper-snapper”
“Blimey, Gran! How did you do that so quickly?”
And Gran replies “I simply divided by 7 and multiplied by 5. I can also tell you how many additional shares you received under the rights issue! If I divide by 7 and multiply by 2, that’s how many new shares you received”
Don’t you just hate it when your Gran shows you that she’s a smart ar….ithmetically cute cookie!
- You must be logged in to reply to this topic.