Pro Com Ltd. issues 8,000, $5 cumulative preferred shares at $66 each and 15,000 common shares at
Question:
Pro Com Ltd. issues 8,000, $5 cumulative preferred shares at $66 each and 15,000 common shares at $30 each at the beginning of 2019. Each preferred share is convertible into two common shares. The appropriate preferred share dividend was declared and paid in 2019. During the years 2020 and 2021, the following transactions aff ected Pro Com’s shareholders’ equity accounts:
2020
Jan. 10 Declared and paid $12,000 of annual dividends to preferred shareholders.
2021
Jan. 10 Declared and paid annual dividend to preferred shareholders and a $4,000 dividend to common shareholders.
Mar. 1 The preferred shares were converted into common shares.
Instructions
a. Journalize each of the 2020 and 2021 transactions.
b. Are there any additional reporting requirements regarding preferred share dividends in either 2020 or 2021?
c. What factors aff ect the preferred shareholders’ decision to convert their shares into common shares?
Taking It Further
Why might investors be willing to pay more for preferred shares that have a conversion option?
DividendA dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
Accounting Principles Volume 2
ISBN: 978-1119502555
8th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak