Question

Exercise 15-14 On January 1, 2020, Pina Colada Ltd. (a public company) had the following shareholders’ equity accounts: Preferred shares, $5 non–cumulative, unlimited number authorized, none issued 0 Common shares, unlimited number authorized, 740,000 issued $ 5,920,000 Retained earnings 1,259,000 Accumulated other comprehensive income 150,000 The following selected transactions occurred during 2020: Jan. 2 Issued 100,000 preferred shares at $100 per share. Mar. 5 Declared the quarterly cash dividend to preferred shareholders of record on March 20, payable April 1. Apr. 18 Issued 130,000 common shares at $11 per share. June 5 Declared the quarterly cash dividend to preferred shareholders of record on June 20, payable July 1. Sept. 5 Declared the quarterly cash dividend to preferred shareholders of record on September 20, payable October 1. Dec. 5 Declared the quarterly cash dividend to preferred shareholders of record on December 20, payable January 1. Dec. 31 Net income for the year was $380,000.

Prepare journal entries to record the transactions above, as well as the closing entries for Income Summary and Dividends.

Enter beginning balances and post the entries to the shareholders' equity and dividends T accounts and arrive at the ending balances.

Prepare the statement of changes in shareholders’ equity for the year.

Prepare the shareholders’ equity section of the SFP at December 31 Prepare the financing activities section of the statement of cash flows for the year ended December 31.

Answer 1

Date	Particulars	Debit	Credit
Jan-2	Cash/Bank	$1,00,00,000
	Preferred share Capital		$1,00,00,000
	Issue of 100,000 preferred shares at $100 per share.
Date	Particulars	Debit	Credit
Mar-5	Dividend on Preference shares	$1,25,000
	Dividend Payable		$1,25,000
	($100000*1.25)
	Dividend on Preferred Share capital calculation per quarter
	Dividend per share per year	$5.00
	Dividend per share per Quarter	$1.25
Date	Particulars	Debit	Credit
Apr-18	Cash/Bank	$14,30,000
	Common share Capital		$14,30,000
	Issue of 130,000 common shares at $11 per share
Date	Particulars	Debit	Credit
Jun-5	Dividend on Preference shares	$1,25,000
	Dividend Payable		$1,25,000
	($100000*1.25)
Date	Particulars	Debit	Credit
Sep-5	Dividend on Preference shares	$1,25,000
	Dividend Payable		$1,25,000
	($100000*1.25)
Date	Particulars	Debit	Credit
Dec-5	Dividend on Preference shares	$1,25,000
	Dividend Payable		$1,25,000
	($100000*1.25)
closing entries for Income Summary and Dividends
Date	Particulars	Debit	Credit
Dec-31	Dividend Payable	$1,20,000
	Dividend on Preference shares		$1,20,000
Adjustment for dividend declared for Non-cumulative proffered shares
Total Dividend declared on Non -Cumulative proffered shares			$5,00,000
Net Income For the year			$3,80,000
Maximum Dividend can be distributed to Non-cumulative			$3,80,000
preferred share holders for the year (least of the Above)
Dividend to be reversed ( $500000-380000)			$1,20,000
Date	Particulars	Debit	Credit
Dec-31	Profit & Loss Account	$3,80,000
	Dividend on Preference shares		$3,80,000
Adjustment for dividend declared for Non-cumulative proffered shares with the net income for the year.

Shareholders' equity
Particulars	Amount (Debit)	Particulars	Amount (Credit)
		Opening Balance	$59,20,000
		Cash/Bank	$14,30,000
		Closing Balance	$73,50,000
Dividend on Preference shares
Particulars	Amount (Debit)	Particulars	Amount (Credit)
Dividend Payable	$1,25,000	Dividend Payable	$1,20,000
Dividend Payable	$1,25,000	Profit & Loss Account	$3,80,000
Dividend Payable	$1,25,000
Dividend Payable	$1,25,000	Closing Balance	$0
	$5,00,000		$5,00,000

statement of changes in shareholders’ equity for the year
	Common shares	Preferred share	Retained Earnings
Balance on Jan-1	$59,20,000	$0	$12,59,000
Issued for cash	$14,30,000	$1,00,00,000
Net Income			$3,80,000
Cash Dividends			-$3,80,000
	$73,50,000	$1,00,00,000	$12,59,000

financing activities section of the statement of cash flows
Issue of Preferred share Capital	$1,00,00,000
Issue of Common share Capital	$14,30,000
Payment of Dividends	-$3,80,000
Net Cash flow from Financing activity	$1,10,50,000