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Assignment 2

On January 1, 2022, Buzz Corporation issued $8 million of bonds with detachable share warrants. Lighting Co. purchased 15% of the bonds. Journal entries are required to record the bond issuance and the exercise of warrants by Lighting Co. on April 1, 2024. Star Ltd issued shares for cash and in exchange for shares in another company. It later declared a property dividend distributing shares it held in the other company. Journal entries are required to record these transactions. King Ltd's statement of shareholders' equity for 2021 is provided. Transactions during 2022 include share repurchases, new share issuances, and bonus shares issued from retained profits. Statements of changes in equity and shareholders

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28 views

Assignment 2

On January 1, 2022, Buzz Corporation issued $8 million of bonds with detachable share warrants. Lighting Co. purchased 15% of the bonds. Journal entries are required to record the bond issuance and the exercise of warrants by Lighting Co. on April 1, 2024. Star Ltd issued shares for cash and in exchange for shares in another company. It later declared a property dividend distributing shares it held in the other company. Journal entries are required to record these transactions. King Ltd's statement of shareholders' equity for 2021 is provided. Transactions during 2022 include share repurchases, new share issuances, and bonus shares issued from retained profits. Statements of changes in equity and shareholders

Uploaded by

Nate Lo
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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ACCT3103 - Intermediate Financial Accounting II

Assignment 2

Question 1 (Issuance of bonds with share warrants):


On January 1, 2022, Buzz Corporation issued $8 million of 8% nonconvertible bonds at 102. The
bonds are due on December 31, 2024 (3 years). Each $1,000 bond was issued with 4 detachable
share warrants, each of which entitled the bondholder to purchase, for $30, one share of Buzz
Corporation's ordinary shares. Lighting Co. purchased 15% of the bond issue. On January 1, 2022,
the market value of the ordinary shares was $36 per share and the market value of each warrant was
$12. On April 1, 2024, when Buzz Corporation's ordinary shares had a market price of $40 per
share, Lighting Ltd. exercised the warrants it held.

Required:
1. Prepare the journal entries on January 1, 2022, to record the issuance of the bonds by Buzz
Corporation.
2. Prepare the journal entries for Buzz Corporation on April 1, 2024, to record the exercise of the
warrants by Lighting Ltd.
Question 2 (Accounting for share issuance and dividend):
Star Ltd., started on January 1, 2022, was authorized to issue 2,500,000 ordinary shares.

During the fiscal year ending December 31, 2022, the following transactions were completed in the
order given.

(1) January 1 1,200,000 ordinary shares were issued for cash at $15.

(2) March 15 40,000 ordinary shares were exchanged for 60,000 Rainbow Ltd.'s shares. At that
date, Star Ltd’s ordinary share were trading at $20 per share in the Hong Kong
Stock Exchange, while Rainbow Ltd. was still an unlisted company. As
investment banker placed the estimated value of the Rainbow Ltd.’s share as $14
per share.

(3) October 20 Rainbow Ltd. became a listed company and its share was trading at $16 per
share. On the same day, Star Ltd declared and paid a property dividend in which
it distributed all its investment in Rainbow Ltd.’s shares. (Assume that Star Ltd.
has sufficient retained profits for dividend)

Required:
Prepare the journal entries to record all the transactions for Star Ltd. in 2022.
Question 3 (Statement of shareholders’ equity)
Below is the statement of shareholder’s equity of King Ltd.:
December 31, 2021
Shareholders’ equity
Preference share capital (1,800 shares) $ 80,000
Ordinary share capital (8,500 shares) 168,000
Retained profits 620,000
Total shareholders’ equity 868,000

The following transactions happen during 2022:


(a) Jan 15: Repurchase 650 shares of preference share at $44 per share, out of share capital
(b) Feb 28: Issuance of ordinary shares – 3,500 shares @ $21 per share
(c) Aug 1: Issue 3 bonus ordinary shares for each 10 ordinary shares. The company has decided
to capitalize 1/5 of its retained profits for this bonus share issuance.
(d) Net income is $98,000 for the year.

Required:
Prepare the Statement of Changes of Shareholders’ Equity and Statement of Shareholders’ Equity
for year 2022.

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