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Chapter 15: Question 9IFRS (page 825)

Ravonette Corporation issued 300 shares of \(10 par value ordinary shares and 100 shares of \)50 par value preference shares for a lump sum of \(13,500. The ordinary shares have a market price of \)20 per share, and the preference shares have a market price of $90 per share.

Instructions

Prepare the journal entry to record the issuance.

Short Answer

Expert verified

Share capital – Preference amount is $5,000.

Share capital – Ordinary amount is $3,000.

Step by step solution

01

Meaning of Preference Share

Preferred shares, commonly known as preferred stock, are shares that empower the shareholders to receive the profits declared by the company before the shareholders accept the value. If the company has chosen to pay its profits to the investors, the preference shareholders are the primary ones to receive payment from the company.

02

Preparing Journal Entries

Date

Particular

Debit ($)

Credit ($)

Cash

13,500

Share capital-preference

5,000

Share premium-preference

3,100

Share capital-ordinary

3,000

Share premium-ordinary

2,400

Working Notes:

Calculation of Share Capital –Preference Amount

Sharecapital-Preference=Preferenceshare×Parvalue=100×$550=$5,000

Calculation of Share Capital Ordinary amount

Sharecapital-Ordinary=Ordinaryshares×Parvalue=300×$10=$3,000

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Most popular questions from this chapter

Use the information from BE15-13, but assume Green Day Corporation declared a 100% stock dividend rather than a 5% stock dividend. Prepare the journal entries for both the date of declaration and the date of distribution.

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

  1. Share Capital—Ordinary.
  2. (b) Retained Earnings.
  3. Share Premium—Ordinary.
  4. Treasury Shares.
  5. Share Premium—Treasury
  6. Share Capital—Preference
  7. Accumulated Other Comprehensive Income.

(Stock Dividends and Stock Split) Oregon Inc. \(10 par common stock is selling for \)110 per share. Four million shares are currently issued and outstanding. The board of directors wishes to stimulate interest in Oregon common stock before a forthcoming stock issue but does not wish to distribute capital at this time. The board also believes that too many adjustments to the stockholders’ equity section, especially retained earnings, might discourage potential investors. The board has considered three options for stimulating interest in the stock:

The board has considered three options for stimulating interest in the stock:

  1. A 20% stock dividend.
  2. A 100% stock dividend.
  3. A 2-for-1 stock split.

Instructions

Acting as financial advisor to the board, you have been asked to report briefly on each option and, considering the board’s wishes, make a recommendation. Discuss the effects of each of the foregoing options.

For what reasons might a corporation purchase its own stock?

The following comment appeared in the notes of Colorado Corporation’s annual report: “Such distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company’s ordinary cash dividends.” How would a partial liquidating dividend be accounted for in the financial records?
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