Question
Foley Corporation has the following capital structure at the beginning of the year: Share capitalpreference 6%, $50 par value, 20,000 shares authorized, 6,000 shares issued
Foley Corporation has the following capital structure at the beginning of the year:
Share capitalpreference 6%, $50 par value, 20,000 shares authorized,
6,000 shares issued and outstanding $ 300,000
Share capitalordinary, $10 par value, 60,000 shares authorized,
40,000 shares issued and outstanding 400,000
Share premiumordinary 110,000
Retained earnings 440,000
Total equity $1,250,000
Instructions
(a) Record the following transactions which occurred consecutively (show all calculations).
1. A total cash dividend of $90,000 was declared and payable to shareholders of record.
Record dividends payable on ordinary and preference shares in separate accounts.
(7 marks)
2. A 10% ordinary share dividend was declared. The average fair value of the ordinary
shares is $18 a share. (10 marks)
3. Assume that net income for the year was $150,000 (record the closing entry) and the
board of directors appropriated $70,000 of retained earnings for plant expansion. (8 marks)
(b) Construct the equity section incorporating all the above information. (15 marks)
(c) How are equity investments measured? (8 marks)
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