Question

Barnaby Corp., a publicly traded company, had the following capital structure on
January 1, 20X4:

Common shares — 1,000,000 issued and outstanding $15,000,000
Series A cumulative preference shares with an annual dividend of $2.50
per share — 90,000 issued and outstanding
5,000,000
4% Series B non-cumulative preference shares — 100,000 issued and
outstanding
11,250,000
2.3% Series C non-cumulative, convertible preference shares which are
convertible into common shares at the rate of two common shares for each
preference shares, at the holder’s option — 50,000 issued and outstanding
$1,750,000
During 20X4, the following capital transactions occurred:
• On March 1, Barnaby issued 160,000 common shares for $5,600,000. Legal and
other fees related to this issue totalled $210,000. Barnaby uses the offset method to
recognize issuance costs.
• On November 1, Barnaby acquired land with an estimated fair market value of
$1,200,000. In lieu of cash, Barnaby issued 65,000 common shares as consideration
for the land when the shares were trading at $18.50 per share.
Dividends were last paid in 20X0. On December 1, 20X4, Barnaby declared dividends
totalling $2,239,000, which will be paid to shareholders of record on January 2, 20X5.

Required:
a) Prepare the journal entries for all the share transactions that occurred during 20X4.


b) Calculate the total amount of dividends to be paid to each class of shares.

c) Prepare the journal entries to record the declaration of the dividends. (1 mark)

Answer 1

Date	Accounts Title	Dr	Cr
Mar-01	Cash	$5390000
	Legal and other fees expenses	210000
	Common shares		5600000
	Under offset method we will deduct issue cost as a reduction from cash and is'
	debited to common stock
Nov-01	Land	1200000
	Common stock		1200000
	As there is no par value given we will not take additional paid
	in capital account
b)	Calculation of dividend
	Series A Preferrence share (2.5*90000)	225000
	Series B non-cumulative preference shares (11250000*4%)	450000
	eries C non-cumulative, convertible preference shares (1750000*2.3%)	40250
	Total	715250
	Remaining will be paid to common shareholder	1523750
	(2239000-715250)
c)	Cash Dividend	2239000
	Dividend payable-Series A Preferrence shares		225000
	Dividend payable-Series B Preferrence shares		450000
	Dividend payable-Series C Preferrence shares		40250
	Dividend payable-Common shares		1523750
	If any doubt please comment