Exercise 2.9 ★ ★ ★ DIVIDENDS, SHARE-ISSUES, OPTIONS, RESERVE TRANSFERS Mercury plc’s equity as at 30 June 2016 was as follows: 120 000 ordinary ‘A’ shares, issued at £1.10, fully paid 150 000 ordinary ‘B’ shares, issued at £1.20, called to 70p 100 000 8% cumulative preference shares, issued at £1, fully paid Calls in advance (30 000 shares) Share issue costs General reserve Retained earnings £ 132 000 105 000 100 000 15 000 (11 200 160 000 158 000 ) Total equity £ 658 800 The general journal is used for all entries. The following events occurred after 30 June 2016: 2016 Sep. 30 The fi nal 10p per share ordinary dividend and the preference dividend, both declared on 25 June 2016, were approved and paid. Oct. 31 A prospectus was issued inviting offers to acquire one option for every two ordinary ‘A’ shares held at a price of 80p per option, payable by 30 November 2016. Each option entitles the holder to one ordinary ‘A’ share at a price of 70p per share and is exercisable in November 2014. Any options not exercised by 30 November 2018 will lapse. Nov. 30 Offers and monies were received for 50 000 options, and these were issued. 2017 Jan. 15 The fi nal call on ordinary ‘B’ shares was made, payable by 15 February 2017. The call takes into account that 15 000 were already paid in advance. Feb. 15 All call monies were received. April 20 50 000 preference shares were repurchased at £1.10 per share. Following the repurchase Mercury wrote down Preference Share Capital by £50 000 and charged Retained Earnings by the balance. Mercury does not need to establish a capital redemption reserve June 30 The profi t for the year was £44 000. The directors decided to transfer £20 000 from the general reserve to retained profi ts and declared a 10p per share dividend and the preference dividend, both payable on 30 September 2017. The dividend has not yet been approved by the annual general meeting (AGM). Sept. 30 The fi nal ordinary and preference dividends declared on 30 June 2017 were approved and paid. Dec. 15 A 5p per share interim ordinary dividend was declared and paid. 2018 Jan. 31 The directors made a one-for-fi ve tradeable rights offer to ordinary ‘B’ shareholders at an issue price of £1.50 per share. The offer’s expiry date was 28 February 2018. Feb. 28 Holders of 120 000 shares accepted the rights offer. Shares were issued, with monies payable by 15 March 2018. Mar. 15 All monies were received. June 30 Profi t for the year was £56 000. The directors, in lieu of declaring a fi nal dividend, made a 1-for-10 bonus issue from the general reserve to all shareholders. Ordinary ‘A’ shares were valued at £1.20 each, ordinary ‘B’ shares were valued at £1.60 each and preference shares were valued at £1.15 each. Nov. 30 Holders of 40 000 options exercised their options, and 40 000 ordinary ‘A’ shares were issued. Monies were payable by 20 December 2018. Dec. 20 All monies were received. 2019 Jan. 10 A 5p per share interim ordinary dividend was declared and paid. June 30 Profi t for the year was £48 000. The directors declared a 10p per share fi nal dividend and the preference dividend, both payable on 30 September 2019. The dividend has not yet been approved by the AGM.

Required

(a) Prepare general journal entries and closing entries to record the above transactions and events.

(b) Prepare reconciliations for the following accounts for the period 30 June 2016 to 30 June 2019: • Share capital (Ordinary ‘A’) • Share capital (Ordinary ‘B’) • Share capital (Preference)