Question # 3

In each of the following independent cases, it is assumed that the corporation has outstanding 20,000, $0.80, preferred shares, with a carrying value of $200,000, and 80,000 common shares, with a carrying value of $800,000. Although dividends have been paid regularly, no dividends were declared for past two years.

1.At December 31, 2017, the board of directors wants to distribute $125,000 in dividends. How much will the preferred shareholders receive if their shares are cumulative and non-participating?

2.At December 31, 2017, the board of directors wants to distribute $200,000 in dividends. How will the preferred shareholders receive if their shares are cumulative and participating up to 15% in total?

On December 31, 2017, the preferred shareholders received an $80,000 dividend on their shares, which are cumulative and fully participating. How much money was distributed in total for dividends?

Question # 4

For each of the unrelated situations described below, prepare the entries required to record the transactions.

On August 1, 2017, Alpha Corporation called its 10% convertible bonds for conversion. The $4,000,000 par value bonds were converted into 160,000 no par common shares. On August 1, there was $350,000 of unamortized premium applicable to the bonds. At the time of issuance, Contributed SurplusConversion Rights was credited for $150,000, which represented the equity portion of the convertible bonds, and the market value of the common shares was $20 per share.

The company records the conversion using the book value method. Ignore all interest payments.