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Chapter 15: Question 10IFRS (page 831)

Weisberg Corporation has 10,000 shares of \(100 par value, 6%, preference shares and 50,000 ordinary shares of \)10 par value outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

  1. If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, statement of financial position? How should these dividends be reported?
  2. If the preference shares are convertible into seven shares of \(10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value?
  3. If the preference shares were issued at \)107 per share, how should the preference shares be reported in the equity section?

Short Answer

Expert verified

The cumulative Dividend is $180,000.

Share Premium Ordinary is $90,000.

Preference Share premium is $70,000.

Step by step solution

01

Meaning of Dividend

Dividend refers to remuneration, cash, or something else that a company pays to its shareholders. Dividends can be issued in various forms, such as cash payments, stocks, or any other frame. A company's profits are chosen by its executive board and require the support of shareholders.

02

Determining how to report dividends (a)

The cumulative dividend of $180,000 is disclosed in a note to the equity section, it is not reported as a liability.

Working Notes:

Calculation of Cumulative Dividend

Cumulativedividend=(Share脳Parvalue脳Preferencedividendrate)脳Pershare=(10,000脳100脳6%)脳3=$60,000脳3=$180,000

03

Preparing Journal entry for conversion (b)

Date

Particular

Debit ($)

Credit ($)

Share capital-preference

300,000

Share capital-Ordinary

210,000

Share Premium-Ordinary

90,000

Working Notes:

Calculation of Share Capital-Ordinary

Sharecapital-Ordinary=Shares脳Convertibleshares脳Parvalue=3,000脳7脳$10=$210,000

Calculation of share capital 鈥揚reference

Sharecapital-preference=share脳Parvalue=300脳$100=$300,000

04

Preparing Equity Section for Preference Share

WEISBERG CORPORATION

EQUITY

December 31, 2017


Preference shares,$100 par 6%

10,000 shares issued

$1,000,000

Share premium-preference

70,000

Working Notes:

Calculation of Premium-Preference

Sharepremiumpreference=Shares脳Premiumvaluepershare=10,000脳$7=$70,000

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Most popular questions from this chapter

Dividends are sometimes said to have been paid 鈥渙ut of retained earnings.鈥� What is the error, if any, in that statement?

(Dividends and Stockholders鈥� Equity Section) Anne Cleves Company reported the following amounts in the stockholders鈥� equity section of its December 31, 2016, balance sheet.

Preferred stock, 10%, \(100 par (10,000 shares authorized, 2,000 shares issued)

\)200,000

Common stock, \(5 par (100,000 shares authorized, 20,000 shares issued)

100,000

Additional paid-in capital

125,000

Retained earnings

450,000

Total

\)875,000

During 2017, Cleves took part in the following transactions concerning stockholders鈥� equity.

  1. Paid the annual 2016 \(10 per share dividend on preferred stock and a \)2 per share dividend on common stock. These dividends had been declared on December 31, 2016.
  2. Purchased 1,700 shares of its own outstanding common stock for \(40 per share. Cleves uses the cost method.
  3. Reissued 700 treasury shares for land valued at \)30,000.
  4. Issued 500 shares of preferred stock at \(105 per share.
  5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for \)45 per share.
  6. Issued the stock dividend.
  7. Declared the annual 2017 \(10 per share dividend on preferred stock and the \)2 per share dividend on common stock. These dividends are payable in 2018.

Instructions

  1. Prepare journal entries to record the transactions described above.
  2. Prepare the December 31, 2017, stockholders鈥� equity section. Assume 2017 net income was $330,000.

P15-12 (LO1,2,3,4) (Analysis and Classification of Equity Transactions) Penn Company was formed on July 1, 2015. It was authorized to issue 300,000 shares of \(10 par value common stock and 100,000 shares of 8% \)25 par value, cumulative and nonparticipating preferred stock. Penn Company has a July 1鈥揓une 30 fiscal year.

The following information relates to the stockholders鈥� equity accounts of Penn Company.

Common Stock

Prior to the 2017鈥�2018 fiscal year, Penn Company had 110,000 shares of outstanding common stock issued as follows.

1. 85,000 shares were issued for cash on July 1, 2015, at \(31 per share.

2. On July 24, 2015, 5,000 shares were exchanged for a plot of land which cost the seller \)70,000 in 2009 and had an estimated fair value of \(220,000 on July 24, 2015.

3. 20,000 shares were issued on March 1, 2016, for \)42 per share.

During the 2017鈥�2018 fiscal year, the following transactions regarding common stock took place.

November 30, 2017 Penn purchased 2,000 shares of its own stock on the open market at \(39 per share. Penn uses the cost method for treasury stock.

December 15, 2017 Penn declared a 5% stock dividend for stockholders of record on January 15, 2018, to be issued on January 31, 2018. Penn was having a liquidity problem and could not afford a cash dividend at the time. Penn鈥檚 common stock was selling at \)52 per share on December 15, 2017.

June 20, 2018 Penn sold 500 shares of its own common stock that it had purchased on November 30, 2017, for \(21,000.

Preferred Stock

Penn issued 40,000 shares of preferred stock at \)44 per share on July 1, 2016.

Cash Dividends

Penn has followed a schedule of declaring cash dividends in December and June, with payment being made to stockholders of record in the following month. The cash dividends which have been declared since inception of the company through June 30, 2018, are shown below.

Declaration date

Common stock

Preferred stock

12/15/16

\(0.30 per share

\)1 per share

6/15/17

\(0.30 per share

\)1 per share

12/15/17

-

\(1 per share

No cash dividends were declared during June 2018 due to the company鈥檚 liquidity problems.

Retained Earnings

As of June 30, 2017, Penn鈥檚 retained earnings account had a balance of \)690,000. For the fiscal year ending June 30, 2018, Penn reported net income of $40,000.

Instructions

Prepare the stockholders鈥� equity section of the balance sheet, including appropriate notes, for Penn Company as of June 30, 2018, as it should appear in its annual report to the shareholders.

Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.

Indicate how each of the following accounts should be classified in the Equity section.

  1. Share Capital鈥擮rdinary.
  2. (b) Retained Earnings.
  3. Share Premium鈥擮rdinary.
  4. Treasury Shares.
  5. Share Premium鈥擳reasury
  6. Share Capital鈥擯reference
  7. Accumulated Other Comprehensive Income.
See all solutions

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