Which type of financial instrument has the following characteristics?
– they do not normally have any voting rights;
– they usually have a fixed rate of return;
– they are ranked after unsecured creditors;
– the return can be suspended by directors, but will have to be paid in later years.
(A) Convertible stock
(B) Ordinary shares
(C) Preference shares
(D) Cumulative preference shares
The directors of Alpha have decided to make a bonus issue of one for every five shares held by existing shareholders. The balance sheet of Alpha immediately before the issue was as follows:
Alpha: balance sheet as at 31 December 20X9
$000
Non-current assets
10,500
Working capital
4,800
15,300
Share capital
10,000
Retained earnings
2,300
12,300
Liabilities
3,000
15,300
Share capital consists of 20 million 50¢ ordinary shares.
Requirement
Prepare the accounting entry that records the bonus issue and redraft the balance sheet immediately after the bonus issue takes place.