Problem
The following is an extract from the balance sheet of Dow Breweries Ltd. (DBL) as at December 31, 2021:
Shareholders' equity:
Preferred shares, $1 per share dividend, redeemable at $18 per share, 500,000 authorized, 100,000 issued and outstanding $1,600,000
Contributed surplus- preferred shares, from share repurchases 3, 000
Contributed surplus- common shares, from share repurchases 240,000
Common shares, 10,000,000 authorized, 700,000 issued/outstanding 6,637,489
Retained Earnings 12,649,187
Total $21,129,676
The company did not declare dividends in 2021 for the first time ever. Transactions for 2022 include the following:
• March 15- DBL purchased 10,000 preferred shares on the stock exchange for $17.50 per share.
• March 28- DBL redeemed 5,000 preferred shares directly from shareholders.
• May 1- DBL issued 200,000 common shares for $20 each.
• June 1- DBL split the common shares 2:1 as the market price increased.
• September 1- DBL bought back 400,000 common shares for $10.00 each.
• December 31- DBL declared dividends of $700,000 and had an after tax income for accounting purposes of $500,000.
Task
1. Assume that DBL follows ASPE in its equity transactions. Prepare the journal entries required for 2022.
2. Prepare the equity section of the balance sheet as at December 31, 2022.
3. Determine the allocation of the dividend declared in 2022 to each class of shareholder assuming that the PF shares are (a) non-participating and cumulative and then (b) fully participating and non-cumulative.