PROBLEM 15.1 (Continued)
December 31
Retained Earnings …………………………………………… 37,000
Cash Dividend Payable—Ordinary …………….. 5,000*
Cash Dividend Payable—Preference ………….. 32,000**
(b) PHELPS CORPORATION
Partial Statement of Financial Position
December 31, 2019
Equity
Share capital—preference—
par value $100 per share,
8% cumulative and nonparticipating,
PROBLEM 15.2
(a) Feb. 1 Treasury Shares (€19 X 2,000) ………….. 38,000
Cash ………………………………………. 38,000
(b) CLEMSON SE
Partial Statement of Financial Position
April 30, 2019
Equity
Share capital—ordinary,
€5 par value, 20,000 shares issued,
19,900 shares outstanding ……………………. €100,000
Share premium—ordinary………………………… €300,000
**Treasury shares (beginning balance) ………. € 0
February 1 purchase (2,000 shares) …………. 38,000
March 1 sale (800 shares) ……………………….. (15,200)
March 18 sale (500 shares) ……………………… (9,500)
April 22 sale (600 shares)………………………… (11,400)
PROBLEM 15.3
HATCH PLC
Partial Statement of Financial Position
December 31, 2019
Equity
Share capital—preference, £20 par, 8%,
180,000 shares issued
Share premium—preference ……………………… 260,000
Share premium—ordinary …………………………. 27,750,000
Supporting balances are indicated in the following T-Accounts.
Share Capital—Preference
Bal. 3,000,000
1. 600,000
3,600,000
Share Premium—Ordinary
Bal. 27,000,000
4. 750,000
27,750,000
PROBLEM 15.3 (Continued)
Share Capital—Ordinary
Bal. 10,000,000
3. 250,000
10,250,000
Bal. 4,500,000
10. 2,100,000
4,272,000
Share Premium—Preference
Bal. 200,000
2. 60,000
260,000
6. 100,000
200,000
1. Jan. 1 30,000 X £20
2. Jan. 1 30,000 X £2
3. Feb. 1 50,000 X £5
LO: 1,2,3, Bloom: AP, Difficulty: Moderate, Time: 25-30, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
PROBLEM 15.4
-1-
Cash ……………………………………………………………………….. 10,000
-2-
Machinery (500 X €16) ………………………………………………. 8,000
-3-
Cash ……………………………………………………………………….. 10,800
Share Capital—Preference …………………………………. 5,000
Share Premium—Preference (€5,974 – €5,000) …….. 974
PROBLEM 15.4 (Continued)
-4-
Furniture and Fixtures …………………………………………….. 6,500
Share Capital—Preference ………………………………… 2,500
PROBLEM 15.5
(a) Treasury Shares (380 X £40)…………………………. 15,200
Cash ……………………………………………………. 15,200
(d) Cash (110 X £38) ………………………………………….. 4,180
Share Premium—Treasury …………………………... 620
Treasury Shares …………………………………… 4,800*
PROBLEM 15.6
(a) -1-
Treasury Shares (280 X $97) ……………………………….. 27,160
Cash ……………………………………………………………. 27,160
-2-
-3-
Dividends Payable ……………………………………………… 90,400
Cash …………………………..………………………………. 90,400
-4-
-5-
Treasury Shares (500 X $105) ……………………………… 52,500
Cash …………………………..………………………………. 52,500
-6-
Cash (350 X $96) ………………………………………………… 33,600
PROBLEM 15.6 (Continued)
(b) WASHINGTON COMPANY
Partial Statement of Financial Position
December 31, 2020
Equity
Share capital—ordinary, $100 par value,
authorized 8,000 shares; issued 4,800 shares,
4,650 shares outstanding ……………………………… $480,000
PROBLEM 15.7
(a)
For preference dividends in arrears:
Retained Earnings ………………………………………….
18,000
Treasury Shares …………………………..…………
18,000*
*1,500 treasury shares issued as dividend
1,500 X R$12 (R$33,600 ÷ 2,800) = R$18,000
For 6% preference current year dividend:
Retained Earnings ……………………………………….
18,000
Cash ……………………………………………………
18,000*
*(6% X R$300,000)
For R$.30 per share ordinary dividend:
Retained Earnings ……………………………………….
89,610
Cash ……………………………………………………
89,610*
As of Dec. 31, 2019 (300,000 – 2,800) …………….
297,200
shares
Preference distribution …………………………………
shares
298,700
shares
Ordinary dividend ………………………………………..
/share
(b) The suggested cash dividend could be paid even if the jurisdiction did
restrict the retained earnings balance in the amount of the cost of
PROBLEM 15.7 (Continued)
*Preference dividends in arrears (6% X R$300,000) …
R$ 18,000
Current preference dividend (6% X R$300,000) ………
18,000
Ordinary dividend (R$.30 X 297,200) ……………………..
R$105,000
Estimated net income………………………………………….
Total balance available ………………………………………..
If restricted by cost of treasury shares …………………
PROBLEM 15.8
Transactions:
(a) Assuming Myers declares and pays a €1 per share cash dividend.
(1) Total assets—decrease €4,000 [(€20,000 ÷ €5) X €1]
(b) Myers declares and issues a 10% share dividend when the market price
of the stock is €14.
(1) Total assets—no effect
(c) Myers declares and issues a 100% share dividend when the market
price of the stock is €15 per share.
(1) Total assets—no effect
(d) Myers declares and distributes a property dividend
(1) Total assets—decrease €14,000 (2,000 X €7)—€6,000 gain less
€20,000 dividend.
PROBLEM 15.8 (Continued)
Note:
The journal entries made for the above transaction are:
Investments in ABC Shares (€10 – €7) X 2,000 ………..
6,000
Unrealized Holding Gain or Loss-Income …………
6,000
Retained Earnings (€10 X 2,000) …………………………..
20,000
(To record distribution of property dividend)
(e) Myers declares a 2-for-1 share split
(1) Total assets—no effect
PROBLEM 15.9
VICARIO CORPORATION
Partial Statement of Financial Position
December 31, 2021
Equity
Share capital—preference, $100 par value
Share capital—ordinary, $50 par value
15,000 shares authorized,
8,000 shares issued 7,700 shares outstanding ….
Share premium—preference ……………………………….
65,000
Share premium—ordinary …………………………………..
49,000*
Retained earnings …………………………..………………….
Less: Treasury shares (300 shares—ordinary) ……
PROBLEM 15.10
To: Ortago S.A. Board of Directors
From: Good Student, Financial Advisor
Date: Today
Subject: Report on the effects of a share dividend and a share split
INTRODUCTION
As financial advisor to the Board of Directors for Ortago S.A., I have been
asked to report on the effects of the following options for creating interest
RECOMMENDATION
In order to meet the needs of Ortago S.A. the board should choose a
DISCUSSION OF OPTIONS
The three above-mentioned options would all result in an increased
number of ordinary shares outstanding. Because the shares would be
PROBLEM 15.10 (Continued)
A 20% SHARE DIVIDEND
This option would increase the shares outstanding by 20 percent, which
translates into 800,000 additional shares of €10 par value.
The problem with this type of share dividend is that IFRS requires these
shares to be accounted for at their par value.
A 100% SHARE DIVIDEND
This option would double the number of €10 par value ordinary shares
currently issued and outstanding. While this type of dividend is
considered, in substance, a share split, Retained Earnings is nonetheless
The following journal entry would be made to record the declaration of this
dividend:
PROBLEM 15.10 (Continued)
A 2-FOR-1 SHARE SPLIT
This option doubles the number of shares issued and outstanding; however,
it also cuts the par value per share in half. No accounting treatment beyond
CONCLUSION
To generate the greatest interest in Ortago S.A. shares while maintaining
the present balances in the equity section of the statement of financial
PROBLEM 15.11
(a)
May 5, 2019
Retained Earnings ………………………………………. 1,800,000
Dividends Payable ………………………………… 1,800,000
(b)
November 30, 2019
Retained Earnings ………………………………………. 1,800,000
Ordinary Share Dividend
(c)
EARNHART CORPORATION
Partial Statement of Financial Position
December 31, 2019
Equity
Share capital—ordinary $10 par value,
PROBLEM 15.11 (Continued)
Statement of Retained Earnings
For the Year Ended December 31, 2019
Balance, January 1 …………………………….
$24,000,000
Add: Net income ………………………………
4,700,000
28,700,000
Less: Dividends on ordinary shares:
Cash………………………………………..
Share (see note) ……………………….
3,600,000
Note: The 6% share dividend (180,000 shares) was declared on November 30,
PROBLEM 15.12
PENZI PLC
Partial Statement of Financial Position
June 30, 2020
Equity
8% Share capital—preference, £25 par value,
cumulative and non-participating,
100,000 shares authorized, 40,000
shares issued and outstanding—Note A …………
Share capital—ordinary shares, £10 par value,
issued with 1,500 shares held in the treasury ….
£2,154,000
Share premium—preference ……………………………..
760,000
Share premium—ordinary …………………………………
2,595,000*
Share premium—treasury …………………………………
1,500
3,356,500
Retained earnings …………………………..………………..
636,000
Less: Treasury shares, (1,500 shares) ………………
Total equity ………………………………………………..
£6,088,000