ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Norwood Co has $1 ordinary shares and 6% $1 irredeemable preference shares classified as equity. It has 500,000 ordinary shares and 200,000 preference shares in issue. Profit for the year is $150,000. The directors declare the preference dividend and an ordinary dividend of $0.10 per share. What is the total amount debited to equity as dividends for the year?
The total dividends debited to equity are $62,000. The preference dividend is 6% of $200,000, which is $12,000, and the ordinary dividend is 500,000 shares at $0.10, which is $50,000. Both are recorded as distributions in equity.
- A$62,000Correct
- B$12,000
- C$50,000
- D$74,000
Explanation
Preference dividend is 6% x $200,000 = $12,000. Ordinary dividend is 500,000 x $0.10 = $50,000. Total is $62,000. Using profit or only one dividend gives the wrong totals.
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