Reference no: EM132796124

Preferred shares (authorized 1,000,000 shares; issued 250,000 shares)       $ 7,500,000

Common shares (authorized unlimited, issued 600,000 shares)                       18,000,000

Contributed surplus                                                                                  1,500,000

Total paid-in capital                                                                                      27,000,000

Retained earnings                                                                                             24,705,000

Total shareholders' equity                                                                              51,705,000

• Preferred shares have a $40 cumulative dividend and participate in distributions in excess of $60 dividend on the common shares.

Instructions:

Problem a. 123 did not pay dividends in 2018 or 2019. On December 31, 2020 the company has decided to pay a cash dividend of $70 per share to common shareholders. Calculate the amount of cash required to pay both the preferred and common shareholders, if the common shareholders receive a dividend of $70 per share.

Problem b. 123 decides that instead of paying a cash dividend, it will declare a 10% stock dividend on the outstanding common shares at their fair value. The common shares have a fair value of $450 per share on December 31, 2020, the date of declaration. Prepare the journal entry required at declaration.

Problem c. 123 decides instead to acquire and cancel 105,000 common shares at the current fair value of $450 per share. Prepare the entry to record the retirement, assuming the contributed surplus balance arose from previous cancellation of common shares.