Reference no: EM131739876

Question - The shareholders' equity of Deer Ltd. at the end of 2016 and 2015 appeared as follows:

During 2016, Deer paid a total of $125,000 in cash dividends.

	2016	2015
Share capital, preferred shares, $2 cumulative, 2,000,000 shares authorized, 25,000 shares issued	$200,000	$200,000
Share capital, 5,000,000 common shares authorized, 1,200,000 common shares issued (2015-1,000,000 shares)	5,000,000	4,000,000
Retained earnings	3,920,000	3,160,000
Total shareholders' equity	$9,120,000	$7,360,000

Required:

a. Assume the preferred shares were not in arrears at December 31, 2015. How was the $125,000 in cash dividends distributed between the two types of shares in 2016?

b. Assume the preferred share dividends were in arrears for one year; that is, the dividends were not paid in 2015. How was the $125,000 in cash dividends distributed between the two classes of shares?

c. Both common shares and retained earnings changed during the year. Provide journal entries that would account for the changes.