preferred shares, $2,89 non-cumulative, 10,000 shares authorized, issued and outstanding for $498,700
common shares, unlimited shares authorized, 120,000 shares issued and outstanding for $946,900
and retained earnings is 450,530
the only share transactions during 2011 were declaration and distribution of 24,000 common share dividend only july 1
explain what difference would it make if the share dividend had taken place on january 2.
sorry it should be 2.80 non cumulative not 2.89
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To understand the difference it would make if the share dividend had taken place on January 2nd instead of July 1st, we need to look at the impact it would have on the financial statements.
1. Share Dividend Declaration:
On July 1st, a share dividend of 24,000 common shares was declared. This means that instead of paying out cash as a dividend, additional shares were distributed to existing shareholders. The dividend was declared after the financial year end, which means that it would not have any impact on the financial statements for the year 2011.
If the share dividend had taken place on January 2nd, it would have been declared within the same financial year. In this case, the following changes would have occurred:
- Increase in Common Shares Issued: The common shares issued would have increased by 24,000 shares, from 120,000 to 144,000 shares. This increase would be recorded as an adjustment to the common shares outstanding on the balance sheet.
- Decrease in Retained Earnings: Since a share dividend is a distribution of earnings to shareholders, the retained earnings would decrease. The value of the share dividend would be determined using the fair value of the shares on the date of declaration. Assuming a fair value of $946,900 (the value of common shares issued and outstanding), the decrease in retained earnings would be $946,900 * (24,000 / 120,000) = $189,380.
- No impact on Preferred Shares: The share dividend only affects the common shares, so there would be no impact on the preferred shares.
Overall, if the share dividend had taken place on January 2nd instead of July 1st, the common shares issued would have increased, retained earnings would have decreased, and the balance sheet would have reflected these changes due to the earlier declaration of the dividend.