CASE STUDY: MONTGOMERY LTD
On 1 July 2015, Montgomery Ltd was registered and offered 1,000,000 ordinary shares to the public at an issue price of $6, payable as follows:
$3 on application (due 15 August)
$2 on allotment (due 15 September)
$1 on final call
The issue was underwritten at a commission of $8,000. By 15th August, applications had been received for 1,200,000 ordinary shares of which applicants for 200,000 shares forwarded the full $6 per share, the remainder paying only the application money.
At a directors meeting on 16 August, it was decided to allot shares in full to applicants who had paid the full amount and proportionally to all remaining applicants. According to the company’s constitution, all surplus money from application can be transferred to allotment and/or call accounts.
The underwriting commission was paid on the 28th August. Other share issue costs of $6,090 were also paid on this date. All outstanding allotment money was received by the due date.
The final call was made on 1 November with money due by 30 November. All money was received on the due date except for the holder of 30,000 shares who failed to meet the final call.
On the 7th December, as provided for in the constitution, the directors decided to forfeit these shares. They were reissued, on 15 December, as paid to $6 for $5.50 cash. The balance of the Forfeited Shares account was returned to the former shareholder on 16th December.
Prepare the journal entries to record the transactions of Montgomery Ltd up to and including which took place on 16 December 2015. (Show all workings and narrations).