PRACTICAL QUESTION(17 marks)

Twin Star Ltds equity section of its balance sheet for the financial year ended 31 March 2016 is presented below:

Equity:

Fully paid ordinary shares issued @ $1.32 per share

$10,560,000

Preference Shares issued @ $1.25 per share

$8,750,000

Total share capital

$19,310,000

Retained Earnings

5,000,000

Options (92,000 x $0.25)

23,000

$24,333,000

*The options were issued as a part of the executive managements compensation package. The options entitle the executive management team to purchase a total of 92,000 ordinary shares in Twin Star at a strike price of $20 per share. These options can be exercised until 30 June 2018.

The following events occurred during the financial year:

The board of directors announced an interim dividend for ordinary shareholders on 2/9/2016 of 2 cents per share to be paid on the same date.

An obligatory 6.5% preference share dividend was announced on 2/11/2016. The ex-dividend date was on 25 November 2016 the record date was on 29 November 2016. The preference dividend was paid on 16/12/2016.

After the price for Twin Stars shares increased to $27.50 per share on 3/2/2017 all of the executives decided to exercise their option contracts to purchase additional shares in Twin Star on that date.

On 30/3/2017 the directors of Twin Star declared a final ordinary dividend of 5 cents per share and an issue of 200,000 bonus shares at book value (i.e. $1.32), after announcing a profit of $1,500,000 for the financial year.

The final cash dividend has not been paid yet.

Required:

Prepare the journal entries to record:

(i)The interim dividend transaction;(2 marks)

(ii)The preference dividend transactions; (4 marks)

(iii)The exercise of executive share options;(3 marks)

(iv)The final dividend transaction;(2 marks)

(v)The bonus share issue; and(2 marks)

(vi)The closing entry for the dividend transactions.(4 marks)

Narrations are not required. Use the pro forma schedule below.

Pro forma schedule for journal entries.

Date

Explanation

Dr or Cr

Dr ($)

Cr ($)