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Hi
Came across couple of questions for which I could not understand the answer, could you please help?
First Question
Why B and NOT A is the correct answer?
Which of the following errors should be detected by preparing a trial balance
A) A credit entry made on the debit side of the correct account
B) A credit entry made on the credit side of the wrong account
C) A transaction for which no entries were made
D) A transaction entered in the general ledger twiceSecond question
The statement of financial position of Grass and Trees a limited liablitity company as 31 december 2007 and 208 showed proposed dividends declared befre the year end of $50,000 and $55,000 respectively. THe statement of changes in equity for the year ended 31 December 2008 showed dividends of $100,000
How much should be shown in the statement of cash flow of Grass and Trees for the year ended 31 december 2008 relating to the dividends paid.
A 45000
B 50000
C 95000
D 100000Working
50,000 proposed dividend 2007
45000 iterim dividend (100,000-55000)Third question
Ordinary share capital (75 shares) 150,000
5% Irredeememable Preference Shares 75,000The company pay an interim dividend of 10c per share to ordinary shareholders and the fixed dividend to preference shareholders. The company declares a final dividend prior to the year end of 25c per share to its ordinary shareholders.
What amounts should be shown in the SOCIE and Statement of financial position in relation to the dividend.
A 20000 23750
B 23750 NIL
C 73750 50000
D 7375 53750Working
SOCIE
Interim dividend 200000 * 10c 20000
Final dividend 200000 * 25c 50000
Preference dividend 75000 * 5% 3750
73750Statement of financial position 50000
(dividend Paid)Why did the preference share dividend hasn’t been included in the statement of financial position?
Thanks Gabbi
Hello,
Could you please help me with the above questions? I would really like to understand them. thanks a lot
Gabbi
Please do be patient – we aim to answer questions within 48 hours, but we do have lecturing to do most days!
Question 1:
The correct answer is A (although the question is not proper English anyway – you can’t make a credit entry on the debit side by definition 🙂 )
Question 2:
If the statement of changes in equity shows total dividends of 100,000 this will include the dividend declared this year of 55,000, which means that they must have paid an interim dividend this year of the remaining 45,000. They will also have paid the 50,000 that was declared last year (but had not been paid at the end of last year).
The statement of cash flows shows the total paid during the year.Question 3:
The question says that the preference dividend was paid. It would only appear in the statement of financial position if it had not been paid and was therefore still owing at the end of the year.
(The 50000 showing is not a dividend paid at all – it is the final dividend that had been declared but not paid and therefore would be in the statement as a current liability.)Hi John,
sorry just a quick question to clarify a bit of confusion that I still have in mind.
Dividend of preference share not paid needs to be recognize as liabilities in the statement of financial position.
Entry
DR: dividend
CR: Liabilities (not sure the correct account name)Regarding divided declared but not paid, my understanding was that were still in the retained earning account until they were paid.
Probably i was wrong as you said that dividend declared is recognize as liabilities in the financial statement.
What would be the entry?
If the declared dividend are recognize as liabilities, what does the retain earning account represent? Profit and loss of the year only?
Thanks for your help
Gabbi
You are correct about the presence dividends.
Ordinary dividends do not appear anywhere unless they have been paid, or unless they have been declared and are therefore certain – in which case they appear as a liability (usually they will just have been proposed in which case they will not appear anywhere because they will not have been voted on and therefore will not be certain)
Retained earnings is all the profits that have ever been made less all the dividends there have ever been. Retained means ‘kept’ so it is all the profits that have been kept in the company.
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