EXERCISE 15-18

(Dividends and Equity Section) Elizabeth Company reported the following amounts in the
equity section of its December 31, 2019, statement of financial position.

Share capital—preference, 8%, $100 par (10,000 shares authorized, 2,000 shares issued) $ 200,000
Share capital—ordinary, $5 par (100,000 shares authorized, 20,000 shares issued) $ 100,000
Share premium—preference $ 125,000
Retained earnings $ 450,000
Total $ 875,000

During 2020, Elizabeth took part in the following transactions concerning equity.
a. Prepare journal entries to record the transactions described above.
1
Paid the annual 2019 $8 per share dividend on preference shares and a $2 per share
dividend on ordinary shares. These dividends had been declared on December 31,
2019.
Dividends Payable-Preference $ 16,000
Dividends Payable-Ordinary $ 40,000
Cash $ 56,000

2 Purchased 2,700 shares of its own outstanding ordinary shares for $40 per share.
Elizabeth uses the cost method.
Treasury Shares $ 108,000
Cash $ 108,000

3 Reissued 700 treasury shares for land with a fair value of $30,000.
Land $ 30,000
Treasury Shares $ 28,000
Share Premium-Treasury $ 2,000

4 Issued 500 preference shares at $105 per share.

Cash $ 52,500
Share Capital-Preference $ 50,000
Share Premium-Preference $ 2,500

5 Declared a 10% share dividend on the outstanding ordinary shares when the shares
are selling for $45 per share
Retained Earnings $ 9,000
Ordinary Share Dividend Distributable $ 9,000

6 Issued the share dividend.

Ordinary Share Dividend Distributable $ 9,000
Share Capital-Ordinary $ 9,000

7 Declared the annual 2020 $8 per share dividend on preference shares and the $2 per
share dividend on ordinary shares. These dividends are payable in 2021.
Retained Earnings $ 59,600
Dividends Payable-Preference $ 2,000
Dividends Payable-Ordinary $ 39,600

Prepare the December 31, 2020, equity section of the statement of financial position.
b Assume
2020 net income was : $ 330,000

ELIZABETH COMPANY
Partial Statement of Financial Position
December 31, 2019
Equity
Share capital-preference $ 250,000
Share capital-ordinary $ 109,000 $ 359,000
Share premium-preference $ 127,500
Share premium-treasury $ 2,000
Retained earnings $ 711,400
Less: Treasury shares $ -80,000
Total Equity $ 1,119,900
EXERCISE 15-22
(Preference Dividends) Martinez SA's ledger shows the following balances on December 31, 2019.

Share Capital—Preference, 5%—€10 par value, outstanding 20,000 shares

Share Capital—Ordinary—€100 par value, outstanding 30,000 shares
Retained Earnings

Assuming that the directors decide to declare total dividends in the amount of €266,000, determine how much
each class of shares should receive under each of the conditions stated below. One year's dividends are in arrears
on the preference shares.

a. The preference shares are cumulative and fully participating.

Preference
Preference shares are cumulative and fully participating € 26,000

Preference
Dividends in arrears
(5% x € 10 x 20.000) € 10,000
Current Dividend
Preference € 10,000
Ordinary
(5% x €100 x 30.000)
Balance dividend pro-rata € 6,000
€ 26,000

b. The preference shares are non-cumulative and non-participating.

Preference
Preference shares are non-cumulative and non-participating € 10,000

Preference
Current Dividend
Preference € 10,000
Remainder to ordinary

c. The preference shares are non-cumulative and are participating in distributions in excess of a 7% dividend
shares
Preference
Preference shares are non-cumulative and are participating
in distributions in excess of a 7% € 12,875

Preference
Current Year
Preference
(5% x €10 x 20.000) € 10,000
Ordinary
 (5% x €100 x 30.000)
Additional 2% to ordinary
(2% x €100 x 30.000)
Balance dividend pro-rata € 2,875
€ 12,875
 € 200,000
€ 3,000,000 € 3,200,000
€ 630,000

determine how much € 266,000

dividends are in arrears

Ordinary Total
€ 240,000 € 266,000

Ordinary Total

€ 10,000

€ 150,000 € 160,000
€ 90,000 € 96,000 0.03
€ 240,000 € 266,000

Ordinary Total
€ 256,000 € 266,000

Ordinary Total

€ 10,000
€ 256,000 € 256,000
€ 266,000

s in excess of a 7% dividend rate on the ordinary shares.

Ordinary Total

€ 253,125 € 266,000

Ordinary Total

€ 10,000
€ 150,000 € 150,000

€ 60,000 € 60,000
€ 43,125 € 46,000 0.014375
€ 253,125 € 266,000