Convo

PRACTICE QUESTIONS ON SHAREHOLDERS’ EQUITY

1.  Thompson Industries Ltd. has faced significant cash flow problems during 1997 and 1998, and has not paid any dividends on any shares during this period.  There has been no change in the number of shares outstanding for many years.  The share capital at the end of 1999 is as follows:

        Preferred Class A shares

                2,000 shares, stated value of $200, 5% non-cumulative dividend

        Preferred Class B shares

                5,000 shares, stated value of $100, $3.50 cumulative divided

        Common shares

                20,000 shares

6        Required:

a) Calculate the dividends payable to each class of shares if the Board of Directors were to declare dividends of $2.75 per common share.

b) Calculate the dividends payable to each class of share and the dividend per common share if the Board of Directors were to declare total dividends of $72,500.

2.   At the start of the current year, the shareholders’ equity section of the Balance Sheet of Fluctuation Corp. appeared as follows:

        Shareholders’ Equity

Common shares, 100,000 outstanding                                $1,125,000

Retained earnings                                                             628,000

                                                                        $1,753,000

On March 1, 1999, Fluctuation repurchased 4,000 common shares on the stock market at a cost of $36,440.  On July 15, 1999, Fluctuation issued 10,000 at the market price of $22 per share.  On December 1, 1999, Fluctuation used surplus funds to repurchase an additional 1,000 shares at $20 per share.

6        

Required:

Prepare the journal entries to record the three share transactions during the year.

3.  Selma Inc. has the following shares outstanding at December 31, 1998:

        12,000   Common shares, total proceeds were $60,000

          2,000   Class A Preferred shares, par value $100, $3 cumulative dividend

          2,000   Class B Preferred shares, par value $200, 4% non-cumulative dividend

Selma has not declared any dividends during the last two years, as all internally generated funds were used for a plant expansion.  No new shares were issued during this period.

8        Required:

1)    On December 15, 1998 Selma declared dividends of $52,000.  Calculate the total dividends paid to Class A and B Preferred shareholders, and the per share dividend on each common share.

2) Prepare the journal entry to record the dividends declared.

3) Calculate the total dividends declared if the board of directors had decided on a dividend of $5 per common share.

4.  Louise Ltd. has the following shares outstanding on January 1, 1998:

                                                        Quantity        $ Amount