[jazz12]

My question is. At 1 July 09, the balance in the Retained Earning a/c of xx ltd was $2 000 000. During the year ended 30 June 2010, the following occurred.
1. Directors paid an interim ordnary dividend of $400 000 during the period, and declared a final ordinary dividend of $460 000. A didvidend was declared on the preference shares. The company's share capital comprises 600 00 8% preference shares issued for $1.50 per share and 350 000 ordinary shares fully paid at $2 per share.

The answer is

During the year $ $

Interim dividend paid - ordinary Dr 400 000
Bank Cr 400 000
(Payment ordinary shares interim dividend)

30 June 2010

Final dividend declared – ordinary Dr 460 000
Final dividend declared – preference Dr 72 000
Dividend payable – ordinary Cr 460 000
Dividend payable – preference Cr 72 000
(Recommended final dividend)

Retained earnings Dr 932 000
Interim dividend paid – ordinary Cr 400 000
Final dividend declared – ordinary Cr 460 000
Final dividend declared – preference Cr 72 000
(Closing entry)
I don't understand why this part 350 000 ordinary shares fully paid at $2 per share of the share capital is not made in an entry. I understand how the $72 000 is made up, but don't understnd why this is show but the other part of share capital is not.

[morgaine300]

I think the information given is a bit confusing. I think the $2 per share is the price it was issued at, which has nothing to do with the dividends being recorded. You need that number for the preferred shares because that is what is giving the information to get the $72,000 yearly required dividend. (i.e. 600,000 shares x $1.50/share is $900,000 x 8% gives you the $72,000 required dividend amount.)

This doesn't exist for common (ordinary) stock, so that $2 per share is not used for anything. That isn't a dividend amount.