Question

Weisberg Corporation has 10,000 shares of \(100 par value, 6%, preference shares and 50,000 ordinary shares of \)10 par value outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

1. If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, statement of financial position? How should these dividends be reported?
2. If the preference shares are convertible into seven shares of \(10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value?
3. If the preference shares were issued at \)107 per share, how should the preference shares be reported in the equity section?

Short answer

The cumulative Dividend is $180,000.

Share Premium Ordinary is $90,000.

Preference Share premium is $70,000.

Step-by-step solution

Meaning of Dividend

Dividend refers to remuneration, cash, or something else that a company pays to its shareholders. Dividends can be issued in various forms, such as cash payments, stocks, or any other frame. A company's profits are chosen by its executive board and require the support of shareholders.

Determining how to report dividends (a)

The cumulative dividend of $180,000 is disclosed in a note to the equity section, it is not reported as a liability.

Working Notes:

Calculation of Cumulative Dividend

$\begin{array}{rcl}Cumulativedividend& =& (Share\times Parvalue\times Preferencedividendrate)\times Pershare\\ & =& (10,000\times 100\times 6\%)\times 3\\ & =& \$60,000\times 3\\ & =& \$180,000\end{array}$

Preparing Journal entry for conversion (b)

Date	Particular	Debit ($)	Credit ($)
	Share capital-preference	300,000
	Share capital-Ordinary		210,000
	Share Premium-Ordinary		90,000

Working Notes:

Calculation of Share Capital-Ordinary

$\begin{array}{rcl}\mathrm{Share}\mathrm{capital}-\mathrm{Ordinary}& =& \mathrm{Shares}\times \mathrm{Convertible}\mathrm{shares}\times \mathrm{Par}\mathrm{value}\\ & =& 3,000\times 7\times \$10\\ & =& \$210,000\end{array}$

Calculation of share capital –Preference

$\begin{array}{rcl}\mathrm{Share}\mathrm{capital}-\mathrm{preference}& =& \mathrm{share}\times \mathrm{Par}\mathrm{value}\\ & =& 300\times \$100\\ & =& \$300,000\end{array}$

Preparing Equity Section for Preference Share

WEISBERG CORPORATION EQUITY December 31, 2017
Preference shares,$100 par 6% 10,000 shares issued	$1,000,000
Share premium-preference	70,000

Working Notes:

Calculation of Premium-Preference

$\begin{array}{rcl}\mathrm{Share}\mathrm{premium}\mathrm{preference}& =& \mathrm{Shares}\times \mathrm{Premium}\mathrm{value}\mathrm{per}\mathrm{share}\\ & =& 10,000\times \$7\\ & =& \$70,000\end{array}$