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Hi Dear Tutor, I have slightly very exceptional questions.
Big Boss Ltd now issues 25,000 6% 2014 preference shares for 25c each. Big Boss
Ltd also decides to pay a dividend of 5c per share to ordinary shareholders.(a) Show the journal entry to record the share issue.
(b) Calculate how much dividend will be payable at the year end and the journal
entries.Dr Bank $6,250
Cr Redeemable preference shares $6,250Dividend payable:
Ordinary s/h = 200,000 shares x $0.05
= $10,000Redeemable preference s/h = $6,250 x 6%
= $375Journal entries:
Dr Finance cost $375
Cr Accrued redeemable preference shares $375why not?
Debit finance cost-375
credit preference share-375-the same sense as dividend payable case?Dr Retained earnings $10,000
Cr Dividend payable $10,000-this is because when dividend is declared and is not paid and we recognise it under current liability as dividedn payable right?why not
debit RE-10000
credit Cash-10000Preference shares:
We debit finance cost and credit accrued pref share dividends.
We cannot credit preference shares – the preference share capital doesn’t change because of the dividend!!Ordinary shares:
We can’t credit cash because we haven’t paid any cash. Declaring a dividend does not mean that they have paid it yet!!
ordinary share yes I understood.
Preference share what i do not understand when company pays dividend over preference share do we always credit accrued redeemable preference share?if we credit accrued redeemable preference share then we recognised it unedr current liability?
There is no such account as “accrued redeemable preference share”. We credit accrued preference dividend account.
It is recognised as a current liability because unlike ordinary dividends it does not have to be approved by shareholders and is an expense of the current period.
i think i found the same question for PS in your note
A company has in issue 10,000 5% Preference Shares of $1 each. The dividend is payable halfyearly.
debit cash-10000
credit preference share-10000debit finance cost-250
credit accrued preference dividend account-250i think it is the almost the same question from context point of view
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