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. Twelve months after the allotment monies had been received the directors made a call for the remaining $1 per share. The correct journal entry to record the amount due to the company for the call instalment is:

Question

Quizplus · Accepted Answer

According to the information given, the shares were issued for $3 each, with $0.50 paid on application and $1.50 paid on allotment. Therefore, the total amount of initial payment (application and allotment) made by the shareholders is $2.00 per share ($0.50 + $1.50). The remaining amount to be paid per share is $1.00, as per the call made by the directors.

Thus, the correct accounting entry to record the call payment is to debit the Call account for $100,000 (100,000 shares x $1 per share) and credit the Share capital account for $100,000 (100,000 shares x $1 per share), as the call payment increases the amount of capital raised by the company. Therefore, the correct choice is C.

Lotus Company Ltd Decided to Issue 100 000 Ordinary Shares