On July 1, 2017, the company issued 20,000 preferred shares for $10 per share to

Question

On July 1, 2017, the company issued 20,000 preferred shares for $10 per share to an investment bank. Each preferred share is convertible for a fixed number of common shares and has a mandatory 5% annual dividend that must be paid on December 31 of each fiscal year. These preferred shares must be redeemed by the company for cash if the market price of common shares exceeds $10 per share. Currently, the common shares are in trading range around $6 per share.

Required

Prepare a report on your analyses of the company’s accounting issues.

Explanation / Answer

on july 1 2017 issue of preferred Share than journal entry is

Bank A/c Dr. $200000

To Preference Share Cr $200000

on Dec 2017 on Proposed the Dividend

Dividend a/c Dr. 10000

To Proposed Dividend 10000

There is issue with Company accounting that prefernce share will be issued with specific term period hence redeemed after the specific term period

Second the Company redeemed the prefernce share for cash hence its not as per accounting policy that company reedemed its prefernce share for cash rather from bank

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