Question

Selected T-accounts for Jade Mineral Corporation at December 31, 2017, are duplicated below.

Preferred Shares, $6 cumulative 10,000 shares authorized 8,000 shares issued

			192,000	Dec. 31/16 Bal.
			192,000	Dec. 31/17 Bal.

Common Shares, 50,000 shares authorized 45,000 shares issued

			540,000	Dec. 31/16 Bal.
			540,000	Dec. 31/17 Bal.

Retained Earnings

			126,000	Dec. 31/16 Bal.
			?	Dec. 31/17 Bal.

Note:
• Dividends were not paid during 2015 or 2016. Dividends of $4.80 per common share were declared and paid for the year ended December 31, 2017.
• 2015 was the first year of operations.
• All shares were issued in the first year of operations.

Required:
Using the information provided, answer the following questions.

1. What is the total amount of dividends that the preferred shareholders are entitled to receive per year?

2. Are there any dividends in arrears at December 31, 2016? If yes, calculate the dividends in arrears.

3. Calculate total dividends paid during 2017 to the:

4. During 2017, the company earned profit of $408,000. Calculate the balance in the Retained Earnings account at the end of 2017.

5. Calculate Total Contributed Capital at the end of 2017.

6. Calculate Total Equity at December 31, 2017.

7. How many more preferred shares are available for issue at December 31, 2017?

8. What was the average issue price per share of the preferred shares at December 31, 2017?

Answer 1

Answers

1. Amount of preferred shareholders dividend

= 8000 shares * $6 = $ 48,000

2. Cumulative dividends are required dividendpayments made by a firm to its preferredshareholders. Cumulative dividends must be paid, even if they are paid at a later date than originally stated. If a firm is unable to pay the dividend on time, they must accumulate sufficient funds until it can make the payment.

Assume conditions are satisfied, accordingly

Total arrears of dividend = $ 48,000+ $ 48,000 =$ 96,000.

3. Total dividend paid during the year   

= (45,000 shares * $ 4.8)+ ($ 48,000 *3)

=$ 216,000+$ 144,000= $ 360,000

4. Balance in the retained earnings as at Dec 31,2017

= profit - Total Dividend   
   = $ 408,000 - $ 360,000

= $ 48,000.

5. Total contributed capital at the end of the 2017

Equity + preferred shares

= $ 714,000 + $ 192,000 = $ 906,000.

Equity = $ 540,000+ $ 126,000+$48,000 = $ 714,000.

6. Total Equity = $ 714,000 ( refer answer 5)

7 preferred shares available at issue is 2000 shares

Authorised shares minus issues shares that is 10,000 shares - 8000 shares

8 Average issue price per preferred shares = $ 192,000/$ 8000 = $ 24