ACCT10002: Tutorial 9 In-class Exercises
This tutorial provides exercises relating to the following areas of study:
Types of dividend payment to shareholders Recording of the Issue of shares
Recording of cash and share dividends Statement of Changes in Equity
Calculation of dividend payout ratio Calculation of Return on Equity
Students are required to prepare for all the questions prior to attending the tutorial.
Question 1. (PSA10.1)
Marge Arena Ltd was registered on 31 January 2016. It invited the public to subscribe to the issue of
20 000 ordinary shares for $50 per share: $20 due on application, $20 due on allotment and the
balance due on call.
Jan. 10 Prospectus issued.
Mar. 1 Received applications for 20 000 shares.
Mar. 2 Allotted 20 000 ordinary shares.
Mar. 31 All allotment money received.
Nov. 1 Remaining capital called.
Nov. 30 All money due on call is received.
Required:
(a) Journalise the transactions.
Mar 1
Dr. Bank $400,000
Cr. Share Application $400,000
Mar 2
Dr. Share Application $400,000
Cr. Share Capital – Ordinary Shares $1,000,000
Mar 31
Dr. Bank $400,000
Cr. Share Allotment $400,000
Nov 1
Dr. Share Capital – Ordinary Shares $600,000
Cr. Share Calls $600,000
Nov 30
Dr. Bank $600,000
Cr. Share Calls $600,000
(b) Post to the equity accounts (use T accounts).
(c) What is the share capital of Marge Arena Ltd at 1 December?
- Total share capital of Marge Arena Ltd at 1 December is $1,000,000.
Question 2. ( PSA10.4)
On 1 January 2016, Jake Ltd had these equity accounts:
Share Capital (50 000 shares issued for $20 each) $1 000 000
General Reserve 200 000
Retained Earnings 600 000
During the year, the following transactions occurred:
Feb. 1 Declared an $0.80 cash dividend per share to shareholders, payable on 1 March.
Mar. 1 Paid the dividend declared in February.
July 1 Declared a 5% share dividend to shareholders, distributable on 31 July. On 1 July, the
market price of the shares was $30 per share and this was determined to be the
amount at which the dividend shares would be issued.
July 31 Issued the shares for the share dividend.
Dec. 1 Declared a cash dividend of $0.40 per share, payable on 5 January 2017.
Required:
(a) Journalise the transactions.
Feb 1
Dr. Retained Earnings $40,000
Cr. Dividends Payable $40,000
Mar 1
Dr. Dividends Payable $40,000
Cr. Bank $40,000
Jul 1
Dr. Retained Earnings $750,000
Cr. Share Capital $750,000
Dec 1
Dr. Retained Earnings $20,000
Cr. Dividends Payable $20,000
(b) Enter the beginning balances and post the entries to the equity and liability T accounts.
(c) Prepare the equity section of Jake Ltd's statement of financial position as at 31
December.
- Share Capital: $1,750,000
- General Reserve: $200,000
- Retained Earnings: $390,000
- Total Equity: $2,340,000
Question 3. (E10.3)
On 31 October the equity section of Sanders Ltd's statement of financial position consists of
contributed equity $600 000 and retained earnings $200 000. Sanders Ltd is considering the following
two courses of action: (1) declaring a 5% share dividend on the 60 000 $10 issued ordinary shares or
(2) paying a cash dividend of $0.50 per share. If the company issues shares as dividend, the shares
will have a nominal value of $10 each.
Required:
(a) Prepare a tabular summary of the effects of the alternative actions on the company's equity, the
number of issued shares, and share capital. Use the table below.
(b) Comment on which course of action you would advise Sanders Ltd to take.
- They should declare a 5% share dividend as total equity remains the same instead of losing
equity after the cash dividend
Original Balances After Share Dividend After Cash Dividend
Share Capital 600,000 630,000 600,000
Retained Earnings 200,000 170,000 170,000
Total Equity 800,000 800,000 770,000
Issued Shares (no.) 60,000 63,000 60,000
Question 4. (PSA10.8)
The following section is taken from Silk Ltd’s statement of financial position at 31 December 2016.
Share capital $5 000 000
Reserves 212 000
Retained earnings 42 000
Additional information:
1. Equity was $5 225 000 at 31 December 2015.
2. Silk Ltd’s profit for the year ended 31 December 2016 was $60 000.
3. Cash dividends declared for the year ended 31 December 2016 were $31 000.
4. The directors of the company approved a transfer of $20 000 to reserves. This was recorded in
the ledger and is the only item affecting reserves during the year.
Required:
(a) Journalise the dividends declared.
Dr. Retained Earnings $31,000
Cr. Dividends Payable $31,000
Dr. Retained Earnings $20,000
Cr. Reserves $20,000
Dr. Retained Earnings $31,000
Cr. Dividends Payable $31,000
Dr. Retained Earnings $20,000
Cr. Reserves $20,000
(b) Calculate the dividend payout ratio.
31000/60000 * 100 = 51.67%
(c) Calculate the return on ordinary shareholders’ equity.
ROE = 60000/5225000 * 100 = 1.15%
(d) Prepare a statement of changes in equity for the year ended 31 December 2016.
Statement of Changes in Equity
For the Year ending 31 December 2016
Share Capital Retained Total
Reserves Earnings
$
$ $ $
Balance
1 January 2016
Operating Profit
Cash Dividends
Reserves
Balance
31 December 2016
Question 5. (Past exam question)
The following section is taken from Clegg Ltd’s Statement of Financial Position at 30 June 2016.
Share Capital $8,000,000
Revaluation reserve 75,000
Currency translation Reserve (22,000)
Retained Earnings 210,000
Additional information:
1. Extract from Clegg Ltd’s Total Comprehensive Income Statement for the year ending 30 June
2017.
EBIT $
Net Profit After Tax $260,000
Comprehensive Income
Currency Translation valuation ($30,000)
Total Income $230,000
2. Eight million shares @ $1 per share were issued to the public on 1 July 2010.
3. Interim cash dividends of $60,000 were declared on October 15, 2016 and paid on 27 December
2016.
4. The directors of the company approved a transfer of $30,000 to Retained Earnings from the
Revaluation Reserve on May 26, 2017.
5. A special cash dividend of 1 cent per share was declared on 15 November 2016 and paid on 15
December, 2016 from Retained Earnings.
6. The directors declared a final dividend in the form of a share dividend of 1 for 50 at $1.25 per
share on June 12, 2017 and the shares are to be issued on June 27, 2017.
Required:
Prepare the Statement of Changes in Equity for the year ended 30 June 2017.
Clegg Ltd
Statement of Changes in Equity
For the Year ending 30 June 2017
For the Year ending Share Revaluation Currency Retained Total
30 June 2017 Capital Reserve Translation Earnings
Reserve
$ $ $ $ $
Balance
1 July 2016
Operating Profit
Other
Comprehensive
Income
Cash Dividends
Share Dividends
Revaluation Reserve
Balance
30 June 2017