Question

Congo Corp. has the following capital structure at the beginning of this year: Preferred shares, $ 3, no par value, cumulative, 20,000 shares authorized, 6,000 shares issued and outstanding$ 300,000 Common shares, no par value, 60,000 shares authorized, 40,000 shares issued and outstanding510,000 Total contributed capital810,000 Retained earnings 340,000 Total shareholders' equity$ 1,150,000 Instructions a)Record the following transactions which occurred consecutively this year. Show all calculations. i.There are no dividends in arrears. A total cash dividend of $ 90,000 was declared. The preferred shares are participating to a maximum of 10%. Record dividends payable to common and preferred shares in separate accounts. ii.A 10% common stock dividend was declared. The current market value of the common shares is $ 16 a share. iii.Net income for the year was $ 180,000. Record the closing entry. b) Incorporating all the above information, construct the shareholders' equity.

Answer 1

a) Journal Entries:

S.No.	Particulars	$	$
i.	Retained Earnings	90,000
	Preferred Dividends Payable		25,200
	Common Dividends Payable		64,800
ii	Retained Earnings (40,000*10%*16)	64,000
	Common Stock		64,000
iii.	Income Summary	180,000
	Retained Earnings		180,000

Dividends to Preferred Shareholders:

Preferred Dividends = 6,000*3 = $18,000

Participating Dividend = (90,000-18,000) * 10% = 7,200

Total Dividend to Preferred Shareholders = 18,000 + 7,200 = $25,200

Equity Dividend = 90,000 - 25,200

= $64,800

b) Shareholders' Equity:

Particulars	$	$
Preferred Shares, $3, No Par Value, Cumulative, 20,000 shares authorized, 6,000 shared issued and outstanding	300,000
Common Shares, No Par Value, 60,000 shares authorized, 44,000 shares issued issued & outstanding (40,000+4,000) [510,000+64,000]	574,000
Total Paid Up Capital		874,000
Retained Earnings:
Beginning Balance	340,000
Add: Net Income	180,000
Less: Dividends declared (90,000+64,000)	(154,000)
Ending Balance		366,000
Total Shareholders' Equity		1,240,000