P15.12 (LO1,2,3,4) (Analysis and Classification of Equity Transactions) Penzi plc was formed on July 1, 2017....

P15.12 (LO1,2,3,4) (Analysis and Classification of Equity Transactions) Penzi plc was formed on July 1, 2017. It was authorized to issue 300,000 shares of £10 par value ordinary shares and 100,000 shares of 8% £25 par value, cumulative and non-participating preference shares. Penzi plc has a July 1-June 30 fiscal year.

The following information relates to the equity accounts of Penzi plc.

Ordinary Shares

Prior to the 2019-2020 fiscal year, Penzi plc had 110,000 ordinary shares outstanding issued as follows

1. 85.000 shares were issued for cash on July 1, 2017, at £31 per share.

2. On July 24, 2017, 5,000 shares were exchanged for a plot of land which cost the seller £70,000 in 2011 and had an estimated fair value of £220,000 on July 24, 2017.

3. 20,000 shares were issued on March 1, 2018, for £42 per share.

During the 2019–2020 fiscal year, the following transactions regarding ordinary shares took place.

November 30, 2019	Penzi purchased 2,000 of its own shares on the open market at £39 per share. Penzi uses the cost method for treasury shares.
December 15, 2019	Penzi was having a liquidity problem and could not afford a cash dividend at the time. Penzi's ordinary shares were selling at £52 per share on December 15, 2019.
June 20, 2020	Penzi sold 500 of its own ordinary shares that it had purchased on November 30, 2019, for £21,000.

Preference Shares

Penzi issued 40,000 preference shares at £44 share July 1, 2018.

Cash Dividends

Penzi has followed a schedule of declaring cash dividends in December and June, with payment being made to shareholders of record in the following month. The cash dividends which have been declared since inception of the company through June 30, 2020, are shown below.

Declaration Date	Ordinary Shares	Preference Shares
12/15/18	0.30 per share	1.00 per share
6/15/19	0.30 per share	1.00 per share
12/15/19	-	1.00 per share

No cash dividends were declared during June 2020 due to the company's liquidity problem.

Retained Earnings

As of June 30, 2019, Penzi's retained earnings account had a balance of £690,000. For the fiscal year ending June 30, 2020, Penzi reported net income of £40,000.

Instructions

Prepare the equity section of the statement of financial position, including appropriate notes, for Penzi plc as of June 30, 2020, as it should appear in its annual report to the shareholders.

Solutions

Expert Solution

	PENZI COMPANY
	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)	1,000,000.00
Share capital—ordinary shares, £10 par value, 300,000 shares authorized, 115,400 shares issued with 1,500 shares held in the treasury	1,154,000.00	2,154,000.00

Share premium—preference = (40000 x (44-25)	760,000.00
Share premium—ordinary (see below)	2,595,000.00
Share premium—treasury = (500 x (42-39))	1,500.00	3,356,500.00

Retained earnings		636,000.00
Less: Treasury shares, (1,500 shares) @ $39		(58,500.00)
Total equity		6,088,000.00

Note A: Penzi Company is in arrears on the preference shares in the amount of £40,000 [(40,000 shares X £25 X .08) – (40,000 shares X £1)]

Share Capital—Ordinary
	850000	1)
	50000	2)
	200000	3)
	54000	3)
	1154000

Share Premium—Ordinary
	1,785,000.00	1)
	170,000.00	2)
	640,000.00	3)
	2,595,000.00

ekkarill92 answered 1 year ago

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