The ledger of Fortaleza SA at December 31, 2017, after the books have been closed, contains the following equity accounts.

Share Capital-Preference (8,000 shares issued)...........................R$ 800,000

Share Capital-Ordinary (400,000 shares issued) ...........................2,000,000

Share Premium-Preference.......................................................100,000

Share Premium-Ordinary......................................................1,220,000

Ordinary Share Dividends Distributable.........................................200,000

Retained Earnings................................................................2,520,000

A review of the accounting records reveals the following.

1. No errors have been made in recording 2017 transactions or in preparing the closing entry for net income.

2. Preference shares are 8%, R$100 par value, non-cumulative, and callable at R$125. Since January 1, 2016, 8,000 shares have been outstanding; 20,000 shares are authorized.

3. Ordinary shares are no-par with a stated value of R$5 per share; 600,000 shares are authorized.

4. The January 1 balance in Retained Earnings was R$2,450,000.

5. On October 1, 100,000 ordinary shares were sold for cash at R$8 per share.

6. A cash dividend of R$500,000 was declared and properly allocated to preference and ordinary shares on November 1. No dividends were paid to preference shareholders in 2016.

7. On December 31, a 10% ordinary share dividend was declared out of retained earnings on ordinary shares when the market price per share was R$10.

8. Net income for the year was R$970,000.

9. On December 31, 2017, the directors authorized disclosure of a R$100,000 restriction of retained earnings for plant expansion. (Use Note A.)

Instructions

(a) Reproduce the Retained Earnings account (T-account) for 2017.

(b) Prepare a retained earnings statement for 2017.

(c) Prepare an equity section at December 31, 2017.

(d) Compute the allocation of the cash dividend to preference and ordinary shares.