Underwriting of Shares Questions and Answers

Underwriting of Shares Question No. 1 (Partial Underwriting) A Company issued 100,000 shares of $100 each. These shares were underwritten as follows: X—-30,000 shares and Y—– 50,000 shares. The public applied for 70,000 shares. Determine the liability of X, Y and the Company. Answer Marked applications are not given in the problem. Therefore, applications be …

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Issue and redemption of debentures practical problems and solutions

Issue of Debentures Journal Entries Practical Problem No. 1 A company issued 1,000 10% debentures of $100 each at par, payable $40 on application, and the balance on allotment. The public applied for 800 debentures. These applications were accepted. All money was received. Give Journal entries. Solution Issue of Debentures for Consideration other than Cash …

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Redemption of Preference Shares Practical Problem and Solutions

Redemption of Preference Shares at Premium Practical Problem No.1 A Limited Company issued on 1st July 2000, 10,000 redeemable preference shares of $10 each. Such shares wee redeemable at a premium of 10%. Two-fifths of this issue was redeemed out of profits on 10th January 2004. On 20th January 2004, the Company issued 20,000 equity …

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Corporation

What is a Corporation? – Definition A corporation is a separate body, authorized by law, owned by one or more persons and having its own rights, privileges, and obligations distinct from those of its owner(s). In effect, under the Constitution, a corporation is a separate legal entity with a continuous life that has rights and …

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Accounting for leases

How to define a lease? A lease is a contractual agreement between the lessor (the owner of the property) and the lessee (the user of property) that gives the lessee the right to use the lessor’s property for a specific period of time in exchange for stipulated cash payments. Accounting for leases has long been …

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Mortgages Payable

What is meant by a Mortgage Payable? A mortgage is a promissory note secured by an asset whose title is pledged to the lender.  It is a form of long-term liability. Mortgages generally are payable in equal installments consisting of interest and principal. Accounting procedures To demonstrate the accounting procedures, assume that on January 2, …

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Amortizing the bonds discount or premium

The straight-line method or the effective-interest method can be used to amortize the bond discount or premium. As we noted, if there are material differences between the two methods, the effective-interest method should be used. However, for ease of illustration, we will use the straight-line method in this article. Regardless of which method is used, …

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Secured versus Unsecured Bonds

Comparison between Secured and Unsecured Bonds Unsecured bonds, called debentures, are issued without any security to back them. Investors purchase them based on the creditworthiness of the company. Some bonds arc secured by the borrower’s collateral or specified assets. These secured bonds are often referred to as mortgage bonds.

Term versus Serial Bonds

Term Bonds Definition Term bonds are bonds whose entire principal amount is due at a single date. Most corporate bonds are term bonds. Serial Bonds Definition Serial bonds have principal payments that are required at specific intervals. Serial bonds are often issued by state or local municipalities. Example To illustrate, assume that the city of …

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Early Extinguishment of Debt

What is meant by the Early Extinguishment of Debt? – Definition The retirement of debt before maturity is called the early extinguishment of debt. Early extinguishment of debt occurs whenever a firm’s long-term debt is retired before maturity. Management can accomplish this extinguishment by repurchasing the bonds in the market. Other bonds are callable and …

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Preference Shares

What are Preference Shares? Preference shares form a part of the share capital, but their holders do not possess the same status as ordinary shareholders. Though in theory both ordinary and preference shareholders are owners of the company, preference shareholders cannot claim to be the ‘real’ owners. The following features of preference shares will demonstrate …

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Bonds or Debentures

What are bonds or debentures? – Definition A corporation or company generally borrow money by means of issuing debentures or bonds. A debenture or bond is a written acknowledgment by a company or corporation of a loan made to it. It is issued to money lenders under the seal of the corporation. It contains a …

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Issue of bonus shares

Explanation and journal entries The undistributed profit of the company or corporation is transferred to Profit and Loss Appropriation account or retained earning. If the directors decided that out of the profit of the corporation a portion may be divided among the shareholders, the journal entry would be: Profit and Loss Appropriation/Retained earning ——————Dr.   …

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Issue of shares at premium

Definition and explanation Sometimes a company issues its shares at premium, that is to say, at a higher price than the face value, provided there is a public demand for such shares at a higher value. The premium received on issue shares must not be mixed with the share capital but must be credited to separate …

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Procedure for issuance of shares

Explanation and Steps The directors on behalf of the company take necessary steps to raise the capital as-soon-as the company gets the certificate of incorporation. These steps„ are briefly, described below: The directors of a. public limited company issue prospectus inviting the public to apply for the purchase of the shares of the company. The …

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Issuance of shares and debenture – MCQs

Take a quick Multiple Choice Questions (MCQs) test about Issuance of shares and debenture. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start issuance of shares and debenture MCQs quiz. If you find difficulty in answering these questions, read ‘Issuance of shares and …

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