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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

The books of Conchita Corporation carried the following account balances as of December 31, 2017.

Cash \( 195,000

Preferred Stock (6% cumulative, nonparticipating, \)50 par) 300,000

Common Stock (no-par value, 300,000 shares issued) 1,500,000

Paid-in Capital in Excess of Par—Preferred Stock 150,000

Treasury Stock (common 2,800 shares at cost) 33,600

Retained Earnings 105,000

The company decided not to pay any dividends in 2017.

The board of directors, at their annual meeting on December 21, 2018, declared the following: “The current year dividends shall be 6% on the preferred and \(.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of declaration, the preferred is selling at \)80 per share, and the common at \(12 per share. Net income for 2018 is estimated at \)77,000.

Instructions

a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

b) Could Conchita Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 30 cents per share dividend, all in cash?

What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?

How are restrictions of retained earnings reported?

(Preferred Dividends) The outstanding capital stock of Edna Millay Corporation consists of 2,000 shares of \(100 par value, 8% preferred, and 5,000 shares of \)50 par value common.

Instructions

Assuming that the company has retained earnings of $90,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.

  1. The preferred stock is noncumulative and nonparticipating.
  2. The preferred stock is cumulative and nonparticipating.
  3. The preferred stock is cumulative and participating. (Round dividend rate percentages to four decimal places.)

(Equity Transactions and Statement Preparation) On January 5, 2017, Phelps Corporation received a charter granting the right to issue 5,000 shares of \(100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of \)10 par value common stock. It then completed these transactions.

Jan. 11 Issued 20,000 shares of common stock at \(16 per share.

Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock for the

following assets: equipment with a fair value of \)50,000; a factory

building with a fair value of \(160,000; and land with an

appraised value of \)270,000.

July 29 Purchased 1,800 shares of common stock at \(17 per share. (Use cost

method.)

Aug. 10 Sold the 1,800 treasury shares at \)14 per share.

Dec. 31 Declared a \(0.25 per share cash dividend on the common stock and

declared the preferred dividend.

Dec. 31 Closed the Income Summary account. There was a \)175,700 net

income.

Instructions

  1. Record the journal entries for the transactions listed above.
  2. Prepare the stockholders’ equity section of Phelps Corporation’s balance sheet as of December 31, 2017.
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