3. Cervantes Corporation in Madrid, Spain is authorized to issue an unlimited number of ordinary shares and 100,000 6 cumulative preference shares (i.e., a fixed amount of 6 cash dividend is distributed per share before any dividend-distribution to ordinary shares). At January 1, 2018, it had the following opening equity balances:

Preference shares: nil Ordinary Shares: 300,000 shares issued, 1.8 million Additional Contributed Capital: 50,000 Retained Earnings: 1,150,000 Accumulated Other Comprehensive Income: 50,000.

During the year ended December 31, 2018, the company had the following share transactions:

Jan. 10 Issued 100,000 ordinary shares at 8 per share. July 1 Issued 20,000 preferred shares at 50 per share. Sept. 1 Declared 5% share dividends to ordinary shareholders of record on September 15, distributable September 30. The price of the ordinary shares was 10 per share on September 1, 12 per share on September 15, and 11 per share on September 30. Nov. 1 Issued 5,000 preference shares at 40 per share. Dec. 24 Declared an annual cash dividend to preference shareholders of record on January 15, payable January 31. Dec. 31 A loan agreement entered into on December 31 contains a restrictive covenant that limits the payment of future dividends to 15% of profit.

In addition, Cervantes reported profit of 392,000 for the year.

Instructions

A. Make journal entries of the above transactions, including any adjusting entries required at the end of 2018. (30%) B. Prepare the statement of changes in equity and the shareholders equity section of the statement of financial position, including any required note disclosure. (30%)