# 1. Average issue Price a. Preferred Stock = 2,400,000 / 200,000

```2004
–
1. Average issue Price
a. Preferred Stock = 2,400,000 / 200,000 = \$12.00
b. Common Stock = 3,004000 / 400,000 = \$7.51
2. Earnings
Beginning retained earnings
3,300,000 (given in note)
+ Net income
????
-&shy;‐ Dividends declared
50,000 (0.25* 200,000)
= Ending Retained Earnings
3,653,200 (per SE section)
THEREFORE, Net Income =
403,200
Or 3,300,000 +
x
- 50,000 = 3,653,200
x = 3,653,200 – 3,300,000 + 50,000
Beluga Buy Products Ltd.
Statement of Retained Earnings
December 31, 2004
Retained earnings January 1, 2004
Add: Net income 2004
Total:
Less: Dividends Declared
Retained Earnings Dec. 31. 2004
\$3,300,000
403,200
3,703,200
50,000
\$ 3,653,200
Option 2 - \$350,000 cash dividend
P/S
Distribution
C/S
\$2,662,500 \$3,004,000
DECLARED
Total
\$5,666,500
350,000
1 Arrears
2004  200,000 sh x \$0.23
2
46,000
P/S Current (2005)
120,000
(120,000)
184,000
P/S roe = 120,000 / 2,662,500 = 0.0450704
x 3,004,000
4
--
C/S  match P/S ROE
To C/S
(46,000)
304,000
250,000 sh x \$0.48
3
--
--
135,392
(135,392)
135,292
Split Remainder (based on ratio of CC)
48,608
P/S = 2,662,500 / 5,666,500 x 48,608 = 22,839
Max Additional = (0.70 – 0.48) x 250,000 = 55,000
22,839
25,769
(48,608)
∴ can get full amount of split
C/S 48,608 – 22,839
-0Totals
188,839
161,161
350,000
Note: If the total declared was higher and the P/S share of the split in
4 was more than \$55,000 then you would give preferred shareholders
their max of \$55,000 and the remainder would go to common shares.
Option 2 – Example of partially participating reaching maximum
Here, assume total declared was \$500,000 rather than the \$350,000
C/S
P/S
\$3,004,00
\$2,662,500
0
Distribution
DECLARED
Total
\$5,666,500
550,000
1 Arrears
2004  200,000 sh x \$0.23
2
46,000
P/S Current (2005)
(46,000)
454,000
250,000 sh x \$0.48
3
--
120,000
--
C/S  match P/S ROE
(120,000)
334,000
P/S roe = 120,000 / 2,662,500 = 0.0450704
--
x 3,004,000
135,392 (135,392)
To C/S
135,292
4
Split Remainder (based on ratio of CC)
198,608
P/S = 2,662,500 / 5,666,500 x 198,608 = 93,318
BUT max Additional = (0.70 – 0.48) x 250,000 =
55,000
55,000
98,318
143,608 (198,608)
∴ don’t get split amount, will get max of 55,000
C/S 198,608 – 55,000
-0-
Totals
221,000 279,000
500,000
Option 3 – Cash and Share Dividend
 don’t need ‘distribution chart’ since not distributing a lump sum
P/S – cash dividend
Arrears (0.23 * 200,000)
P/S current (250,000 * 0.48)
46,000
120,000
166,000
C/S – share dividend
# of shares = 400,000 sh * .03 = 12,000 sh. x \$6.50 = \$ 78,000
BTW – entries for option 3
Dec. 31
Cash Dividend Declared – P/S
166,000
Dividends Payable – P/S
31
Share Dividend Declared – C/S
166,000
78,000
Share Dividend Distributable
78,000
NOTE:
• As always, the ‘Dividend Payable’ would be in the current liability area.
• The accounts ‘Share Dividend Distributable’ would appear in the contributed
capital section of the Shareholders’ Equity section – just below the regular
Common Share description and balance.
• Both of the ‘Dividend Declared’ accounts are temporary contra-equity accounts
that would be closed to the Retained Earnings account. These amounts would
show on the Stmt of Retained Earnings as a subtraction from Retained Earnings
• When the cash dividends are paid there will be an entry to Dr. Div. Payable and
Cr. Cash. When the shares for the share dividend are issued, an entry is also
required:
Share Dividend Distributable
Common Shares
78,000
78,000
After this entry, the balance in C/S would increase and the Share Dividend
Declared account will be zero
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