Question

Tamer Company authorize to issue at 1/1/2017 : Ordinary, $2 par value per share, 2,000,000 share Preference 6%; $60 par value per share, 10,000 shares. Cumulative and fully participate 1- January 2017 issued for cash 500,000 ordinary for $3, and 5000 preferences for $100. 2- July 1, 2017 issued 500,000 shares for building (fair market 600,000), land (fair market800,00) and equipment (fair market300,000). 3- January 1,2018 issued 5000 preference shares for 120,000 cash. 4- Agust1,2018 issued 1,000,000orinary shares for cash at $4. 5- January 1/,2019 the company issued 500,000 ordinary shares for factory the asking price was 2,000,000 and the share market price was 3.5$. 6- June 1/2019 the company purchase 50,000 from its outstanding shares for 5$ each. 7- August 1/2019 the company sold 20,000 from repurchased shares for $6. 8- September 1/2019 the company sold 20,000 from repurchased shares for $3.5 9-The net income for the years 2017, (200,000$), 2018(450,000$), 2019(500,000$), no dividend paid or declared during 2017 and 2018. 10-If the total amount of cash dividends declared for both classes of shares is $400,000 at 15, December 2019 Required: 1-Prepare all entries during 2019 including the needed entry for separating the dividend into the ordinary and Preference portions at 31December 2019. 2- prepare share- holders equity section in 31/12/2019.

Answer 1

Answer :

(1) Journal enteries

Date	Particulars	Debit	Credit
1-Jan-17	Cash	2,000,000
	Ordinary Share Capital		1,000,000
	6% Preference Share Capital		300,000
	Share Premium account		700,000
	( To record the issue of Ordinary shares and Preference shares)
1-Jul-17	Building	600,000
	Land	80,000
	Equipment	300,000
	Discount on Issue of shares	20,000
	Ordinary Share Capital		1,000,000
	( To record the issue of ordinary shares for Land, Building and Equipment)
1-Jan-18	Cash	120,000
	Discount on Issue of shares	180,000
	6% Preference Share Capital		300,000
	( To record the issue of Preference shares)
1-Aug-18	Cash	4,000,000
	Ordinary Share Capital		2,000,000
	Share Premium account		2,000,000
	( To record the issue of Ordinary shares)
1-Jan-19	The entry of this transaction not has been passed because company is authorized to issue only 2,000,000 shares and it had already issued 2,000,000 shares
1-Jun-19	Treasury stock - Ordinary Share Capital	250,000
	Cash		250,000
	(To record the buy back of ordinary shares)
1-Aug-19	Cash	120,000
	Treasury stock - Ordinary Share Capital		120,000
	(To record sale of Treasury stock)
1-Sep-19	Cash	70,000
	Treasury stock - Ordinary Share Capital		70,000
	(To record sale of Treasury stock)
15-Dec-19	Dividend on Ordinary shares (400,000 - 90,000)	310,000
	Dividend on Preference shares( 18,000 + 36,000 + 36,000)	90,000
	Dividend Payable		400,000
	( To record the dividend declared)
31-Dec-19	Share Premium account	200,000
	Discount on Issue of shares		200,000
	( To record the transfer of Discount )

(2) Preparation of Shareholders Equity section on 31/12/19

Particulars	Amount
Shareholders Equity
Capital stock :
Ordinary shares of $2 par/share
2,000,000 shares authorized
2,000,000 shares issued	4,000,000
6% cumulative Preference shares of $60 par/share
10,000 Shares authorized
10,000 Shares Issued	600,000
Total Capital stock	4,600,000
Additional Paid in Capital :
Securities premium account (Note. 1)	2,500,000
Sale of Treasury stock(Note. 2)	190,000
Total Paid in Capital	7,290,000
Retained Earnings (Note. 3)	750,000
Total Paid in Capital and Retained earnings	8,040,000
Less : Cost of treasury stock (Note. 4)	-250,000
Total Shareholders equity	7,790,000

Notes:

(1) Securities premium account balance = $ 700,000 + 2,000,000 - 200,000 = $2,500,000

(2) Sale of Treasury stock = $ 120,000 + 70,000 = $190,000

(3) Retained Earnings = $ 200,000 + 450,000 + 500,000 - 400,000 = $750,000

(4) Cost of treasury stock = $ 250,000