Question

QUESTION 3 (TOTAL: 10 marks) Green Wave Berhad has the following equity accounts at 31 December 2014 Ordinary Share Capital, no par value Authorised 1,000,000 shares Issued: 480,000 shares RM480,000 9% Cumulative Preference Share Capital, no par value Authorised: 200.000 shares Issued Nil Retained carnings RM394,000 Additional information: Transactions in 2015 and 2016 are as follows. 2015 January The company issued 150,000 Ordinary Shares for cash of RM2 cach to the public January The company issued 6,300 9% Cumulative Preference Shares for cash of RM10 per share July Issued a 5-year 7% bond with par value of RM200,000, The market rate when the bonds were issued was 6,5%. The company received RM204,212 cash for the bonds December The company issued no-par bonus shares at RM2 per share, at a ratio of one for every 7 shares held. The company used its retained camings for the purpose of giving bonus share. December No preference dividends were paid in 2015. December Earned profit of RM76,000 during 2015 and this amount is transferred to Retained Eamines 2016 April Obtained a 4-month loan amounting RM15,000 from TriCity Bank at 6% per year. The funds will be used to purchase new inventory. May Sales revenue of RM850,000 were covered by Green Wave's service warranty. At 31 December 2015. Provision for Warranty Expense account was RM11,600. During the year, Green Wave estimated warranty expense of RM34.000 and paid warranty claims of RM34.800 in May 2016 August The company paid the bank loan: principal amount and interest December Eamed profit of RM194,000 during 2016 and this amount is transferred to Retained Earings December Declared cash dividend of RM0.20 per share to ordinary shareholders, payable in January 2017 December Declared and paid the 2015 preference dividend in arrears and the 2016 dividend on preference shares

1. Journalise the transactions in both years 2015 and 2016

2. Prepare an extract of the statement of financial position showing the equity and liability sections at 31 December 2016

Answer 1

Answer 1 ) - Journal Entries

Date	Particulars	Debit	Credit
2015	Cash	300000
Jan	Ordinary Share Capital		300000
Jan	Cash	63000
	9% Pref Share Capital		63000
July	Cash	204212
	7% Bonds		200000
	Bonds Premium		4212
Dec	Retained Earnings	90000
	Bonus to Ordinary Shareholders		90000
Dec	Bonus to Ordinary Shareholders	90000
	Ordinary Share Capital		90000
Dec	Profit & Loss Account	76000
	Retained Earnings		76000
2016
Apr	Bank	15000
	6% Tricity Loan		15000
May	Provision for Service Warranty	800
	P&L		800
August	6% TriCity Loan	15000
	Interest on Loan	300
	Bank		15300
	( Interest @ 6% pa for Apr to Aug - 4 months )
December	Profit & Loss	194000
	Retained Earnings		194000
December	Proposed Dividend	126000
	Ordinary Shareholders		126000
December	Proposed Dividend	5670
	9% Pref Shareholders		5670
December	9% Pref Shareholders	5670
	Bank		5670

Answer 2 )

Extract of Equity and Liabilities
As on 31.12.2016
Ordinary Share Capital
Authorized - 1000000
Issued	630000	780000
Bonus Shares		90000
9% Cumulative Pref Share capital
Authorized 200000
Issued		63000
Retained Earnings		568330
Liabilities
7 % Bond		200000
Proposed Dividend		126000
Provision for Service Warranty		10800

Working Notes

1) All amounts are in RM

2) Dividend on Ordinary Shares @ 0.20 per share was not paid in 2016 - shall be payable in 2017 . Hence, Proposed Dividend has been taken

Working for Bonus Shares
Ord Share Capital		480000
Issued		150000
		630000
Bonus issue
1 for every 7		90000

Retained Earnings Account
Date	Particulars	Amount	Particulars	Amount
31.12.2014			By Balance C/D	394000
31.12.2015	To Bonus to Ord Share capital	90000
31.12.2015	To Bal c/d	380000	By P&L	76000
		470000		470000
01.01.2016			By balance b/d	380000
			By P&L	194000
31.12.2016	To Pref Shares	5670
31.12.2016	To balance c/d	568330
		574000		574000

Provision for Service warranty
Date	Particulars	Amount	Particulars	Amount
31.12.2015			By Balance C/D	11600
May-16	To P&L	800
31.12.2016	To Bal c/d	10800
		11600		11600