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Discuss the rights entitled to ordinary shareholders

    Assignment Instructions

    Assignment ID: FG133136071

    Question – Q Ltd has the following shareholders equity section as at 30th September 2020:

    SHS. Preference shares shs. 100, par, 8% cumulative and voting 10,000 shares issued and paid up. 1,000,000

    Ordinary shares shs. 20 par 100,000 shares

    Authorized, 70,000 shares issued and paid up. 1,400,000

    Preference share premium 50,000

    Ordinary share premium 700,000

    Retained Earnings 3,000,000

    Total shareholders funds 6,150,000

    Other information

    1. There are no dividends arrears on preference shares. Company made a profit after tax of 6 million shillings for the year to 30.9.2021.

    2. In the year ended 30th September 2021, Directors of Arsenal Ltd declared dividends as follows:

    20% cash dividends on ordinary share capital

    10% stock dividend on ordinary shares. The fair or market value of ordinary share on the date of stock declaration was shs. 5 per share.

    A participating of dividend of shs.10 to each preference share held as at 30.9.2021 and preference divided paid.

    In order to familiarize shareholders with the company new products, the board declared product dividend of one litre of perfume to every ordinary share held as at 30.9.2021. the cost of perfume is shs. 28 per litre pack and the wholesale price is shs. 40 per the one litre pack. Any gain or loss is already included in the earning reported. This excludes shares from stock dividends. Product dividends were computed at wholesale price.

    Ignore withholding taxes.

    AGM was held on 22.10.2021 and approved dividends as proposed by the directors.

    Required –

    a) Compute the dividends payable.

    b) Journal entries to record dividends payable.

    c) Journal entries to record payment of dividends.

    d) Discuss the rights entitled to ordinary shareholders.

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