The summarized balance sheet of Friend ple is given below: Required

(a) How many ordinary shares are in issue?

(b) What does the term par value mean?

(c) If you know that the preference shares were issued at par and all the ordinary Fixed assets Current assets 750.000 Stock 140 000 Debtors Cash 135 000 5.000 280 000 Current liabilities 70 000 210 000 960 000 11% Loan capital Financed by 100 000 860 000 25p Ordinary shares 500 000 8% 1 Preference shares 200 000 Share premium account 50.000 Profit and loss account 110 000 860.000 shares were issued at the same time, how much were the ordinary shares priced at when issued?

(d) Why would the company issue loan capital at 11 per cent if it can issue preference shares on which they only have to pay 8 per cent?

(e) What would happen if the compans failed to pay the interest on the loan?

(f) What can the preference shareholders do if the company fails to pay the preference dividend? (g) What would the ordmary shareholder receive per share if the company was wound up and the assets less current liabilities realised only 500 000? (h) What is the equity in the company? What is the equity per share? 6) If the current share price is 1 20 why might this be so much higher than the par value? (j) Why is the share price different to the equity per share? (k) If the profit for the sear amounted to 110 000 before interest and corpora tion tax the corporation ta amounted to 20 000 and the company declares a dividend of 2p per share, complete the bottom of the profit and loss account to calculate: the profit after interest and before tax the profit after tax retained profit for the year.

(l) What are the journal entries necessary to record the payment of the dividends (m) One of the shareholders has complained that the dividend should be a lot higher.

How much could the company pay as a dividend? Can you see any problem with paying the dividend the company has already declared?