Reference no: EM132628025

On 1 March 2020, MBS Ltd issued a prospectus inviting applications for 1,200,000 ordinary shares at an issue price of $4. The shares were payable $1 on application, $2 on allotment (due 30 April), and $1 on a final call (expected to be made after 2 years). The issue was underwritten at a commission of $10,000.

• By 31 March 2020, applications had been received for 1,000,000 ordinary shares. On 1 April 2020, the directors allotted 1,200,000 ordinary shares. The underwriter paid application ($1) amounts due less commission on 4 April 2020.
• All outstanding allotment money was received by the due date.
• On 10 May 2020, MBS Ltd issued 100,000 ordinary shares privately to XYZ insurance company at a price of $4.
• On 30 June 2020, a 10 cent (per share) final dividend was declared and approved for all ordinary shares issued.
• The payment of the dividend was subsequently made on 1 August 2020.

Required

Problem (a) Prepare the journal entries to record the transactions of MBS Ltd for the events outlined above. Narrations are not required.

Problem (b) Public companies can raise share capital by providing prospectus and encouraging public subscription of shares (i.e., public share float) or by issuing shares privately to institutional investors (i.e., private placement). Discuss two reasons why some companies may prefer private placement over public share float.