Lotus Company Ltd decided to issue 100 000 ordinary shares for $3.00 each, payable in instalments, 50c on application, $1.50 on allotment and the balance payable at the discretion of the company. Applications were received for 120 000 shares. The shares were allotted by the directors a week after the close of applications and refunds were made for 20 000 shares. The correct journal entry to record the full receipt of the allotment instalment is:

Question

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The total amount received from allotment instalments is $150 000 (100 000 shares x $1.50 allotment per share). Therefore, the correct journal entry to record this transaction is to debit Bank account for $150 000 and credit Allotment for $150 000. Option B is incorrect as it includes the excess amount received from the application, which is refunded. Option C is incorrect as it records the allotment as a capital account, which is not correct. Option D is incorrect as it records the receipt as share capital, whereas it is only an allotment installment.

Lotus Company Ltd Decided to Issue 100 000 Ordinary Shares