Question

The following is the shareholders' equity section of Bridgeport Corp. at December 31, 2020: Preferred shares, a authorized 140,000 shares; issued 37,000 shares $ 925,000 Common shares (unlimited authorized, 59,000 issued) 1,475,000 Contributed surplus 113,000 Total paid-in capital 2,513,000 Retained earnings 2,945,600 Total shareholders' equity $5,458,600 a The preferred shares have a $2 dividend rate, are cumulative, and participate in distributions in excess of a $3 dividend on the common shares.

a) No dividends were paid in 2018 or 2019. On December 31, 2020, Bridgeport wants to pay a cash dividend of $4 per share to common shareholders. How much cash would be needed for the total amount to be paid to preferred and common shareholders?

b) The company decides instead that it will declare a 15% stock dividend on the outstanding common shares at their fair value. The common shares’ fair value on the date of declaration is $45 per share. Prepare the entry on the date of declaration.

c) The company decides instead to acquire and cancel 10,100 common shares at the current fair value of $45 per share. Prepare the entry to record the retirement, assuming the contributed surplus balance arose from previous cancellations of common shares.

Answer 1

Dividends to cumulative preference shareholders with arrears

= 37000*2per share*3 years

= 222000

Dividends to common shareholders

=59000*3 per share

=177000 and

Dividends for both common and preference shareholders together sharing 1 rupee per share on 59000 shares

i.e, sharing of $59000 between them as they are participative.

Total amount to be paid = 222000+177000+59000

= 458000

B)

Journal entry on the date of declaration:

Retained Earnings	398250
Stock Dividends Distributable		398250

Journal entry on the date of distribution:

Stock Dividends Distributable	398250
Common Stock		221250
Addition Paid-In Capital		177,000

C) entry for retirement

common stock Dr. 252500

Retained earnings. Dr. 202000

To Cash. Cr. 454500