Question

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QUESTION 5 (16 minutes; 9 marks):  

Queenstown Corporation issues 4,000, $4 cumulativepreferred shares at $80 each and 12,000 common shares at $18 at the beginning of 2020. Each preferred share is convertible into four common shares. During the years 2020 and 2021, the following transactions affected Queenstown Corporation’s shareholders’ equity accounts:

2020

Dec. 10      Declared and paid $12,000 of annual dividends to preferred shareholders.

2021

Dec. 10      Declared and paid the annual dividend to preferred shareholders and a $4,000 dividend to common shareholders.

Dec. 21      The preferred shares were converted into common shares.

Required:

a)         Journalize each of the 2020 and 2021 transactions.

b)         After the preferred shares are converted, what is the total number of common shares issued?

Answer 1

	DATE	ACCOUNT TITLE & EXPLANATION	DEBIT	CREDIT
(A)	10-Dec-20	Dividend to Preferred Shareholders	$12,000
		Cash		$12,000
		Dividend paid to preferred shareholders
	10-Dec-21	Dividend to Preferred Shareholders	$20,000
		Dividend to Common Shareholders	$4,000
		Cash		$24,000
		Dividend paid to preferred and common shareholders
	21-Dec-21	Preferred Share Capital	$320,000
		Common Share Capital		$288,000
		Premium on Shares		$32,000
		Preferred share converted to Common Shares - 1 into 4
(B)		EXISTING COMMON SHARES	12,000
		NEW SHARES - ( CONVERTED FROM PREFERRED)	16,000
		TOTAL SHARES	28,000
		Preferred Share 4000 converted into common shares for 1 share to 4 share
		So common share issued will be 4000*4 =16000
	Working
	2020	Preferred Dividend due	4000*4	$16,000
		Paid		$12,000
		Balance		$4,000
	2021	Preferred Dividend due	4000*4	$16,000
		2020 Arrearage		$4,000
		Total Dividend to preferred shareholders		$20,000
		Preferred Share Conversion
		Preferred share capital - 4000 @ 80 Per share	$320,000
		Converted into 1 : 4 -
		Common Share - 16000 @ 18 per share	$288,000
		Premium on shares	$32,000