Oregano Inc. was formed on July 1, 2020. It was authorized to issue an unlimited number of common shares and 100,000 cumulative and non-participating preferred shares carrying a $2 dividend. The company has a July 1 to June 30 fiscal year. The following information relates to the company’s shareholders’ equity account.Common SharesBefore the 2022–2023 fiscal year, the company had 110,000 outstanding common shares issued as follows:

1. 95,000 shares issued for cash on July 1, 2020, at $31 per share.

2. 5,000 shares exchanged on July 24, 2020, for a plot of land that cost the seller $70,000 in 2010 and had an estimated fair value of $220,000 on July 24, 2020.

3. 10,000 shares issued on March 1, 2021; the shares had been subscribed for $42 per share on October 31, 2020.

Oct. 1, 2022 Subscriptions were received for 10,000 shares at $46 per share. Cash of $92,000 was received in full payment for 2,000 shares and share certificates were issued. The remaining subscription for 8,000 shares was to be paid in full by September 30, 2023, and the certificates would then be issued on that date.

Nov. 30, 2022 The company purchased 2,000 of its own common shares on the open market at $39 per share. These shares were restored to the status of authorized but unissued shares.

Dec. 15, 2022 The company declared a 5% stock dividend at the fair value of the shares for shareholders of record on January 15, 2023, to be issued on January 31, 2023. The company’s common shares were selling at $52 per share on December 15, 2022.

June 20, 2023 The company sold 500 of its own common shares for $21,000.

Preferred SharesThe company issued 50,000 preferred shares at $44 per share on July 1, 2020.

Cash DividendsThe company has followed a schedule of declaring cash dividends each year in December and June and making the payment to shareholders of record in the following month. The cash dividend declarations have been as follows since the company’s first year and up until June 30, 2023:

No cash dividends were declared to common shareholders during June 2023 due to the company’s liquidity problems.

Retained EarningsAs at June 30, 2022, the company’s Retained Earnings account had a balance of $690,000. For the fiscal year ended June 30, 2023, the company reported net income of $40,000.

Instructions

a. Prepare the shareholders’ equity section of the company’s SFP as at June 30, 2023, as it should appear in its annual report to the shareholders.

b. Prepare the journal entries for the 2022–2023 fiscal year. Round to the nearest cent when calculating average price per share.

c. Discuss why the common shareholders might be willing to accept a stock dividend during the year rather than a cash dividend.

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Declaration Date Dec. 15, 2021 June 6, 2022 Dec. 15, 2022 Common Shares $0.30 per share $0.30 per share Preferred Shares $3.00 per share* $1.00 per share $1.00 per share *Includes dividend arrears of $2 from the 2020-2021 fiscal year