ABC Limited issued a prospectus offering 100 000 ordinary shares at an issue price of $2.50 each, payable $1.50 per share on application. The company received applications for 110 000 shares. Which of the following entries correctly records the application money?

Question

Quizplus · Accepted Answer

The application money is recorded as a liability until the shares are allotted. Therefore, the correct entry is to debit cash trust for the total amount of the application money received ($165,000) and credit application for the same amount. Option A is incorrect as it only records the credit side of the entry, and options B and D are incorrect as they do not reflect the correct amount of the application money received.

ABC Limited Issued a Prospectus Offering 100 000 Ordinary Shares