Question 2

Jet Ltd., reported the following on its balance sheet as at December 31, 20X8:

$1.50 Preferred shares, 48,000 shares outstanding $ 1,200,000

Common shares, 112,500 shares issued and outstanding 3,357,000

Contributed surplus on repurchase of common shares 55,800

Contributed surplus- warrants 60,000

Retained earnings 2,220,000

Additional Information for 20X9

i] There were 7,500 warrants outstanding on January 1. The holder of each warrant was entitled to purchase two common shares at $40 each. On that date, 30% of the warrant holders exercised their right and purchased the shares from the company.

ii] On February 1, the company issued 7,000 common shares in exchange for plant and equipment assessed at $289,000. On that date, common shares traded at $40 each.

iii] On March 1, it issued common share subscriptions for 16,400 shares to be issued at $41 each. The subscribers were required to pay $5 on application as the first instalment, to be followed by $21 at the second instalment call and $15 at the final instalment call.

iv] On April 1, the company purchased 9,000 common shares for $34.00 per share and retired them on the same day.

v] On May 1, the second instalment of $21 on the share subscription was called and payments from all subscribers were received.

vi] On July 1, the final instalment was called in. 400 subscribers failed to make the payment. The company issued share certificates to the remaining subscribers. Those subscribers who had failed to pay on July 1 forfeited the amount they paid on the two earlier instalments.

vii] The preferred shares were non-cumulative but participate in distributions in excess of a 7% dividend on the common shares. These shares had been issued several years ago when the company was incorporated. Dividends on preferred shares were last declared in 20X7. The companys management wishes to declare total cash dividends of $500,000 in 20X9.

REQUIRED:

1. Prepare journal entries, in proper format, to record all transaction effects in items [i] to [vii] as listed above.

2. Determine how much dividend should be declared in 20X9 to each shareholder group in item [vii].