Question: Foley Corporation has the following capital structure at the beginning of the year:
Share capital-preference 6%, $50 par value, 20,000 shares authorized,
6,000 shares issued and outstanding $ 300,000
Share capital-ordinary, $10 par value, 60,000 shares authorized,
40,000 shares issued and outstanding 400,000
Share premium-ordinary 110,000
Retained earnings 440,000
Total equity $1,250,000
Instructions: (a) Record the following transactions which occurred consecutively (show all calculations).
1. A total cash dividend of $90,000 was declared and payable to shareholders of record.
Record dividends payable on ordinary and preference shares in separate accounts.
2. A 10% ordinary share dividend was declared. The average fair value of the ordinary shares is $18 a share.
3. Assume that net income for the year was $150,000 (record the closing entry) and the board of directors appropriated $70,000 of retained earnings for plant expansion.
(b) Construct the equity section incorporating all the above information.
(c) How are equity investments measured?