Reference no: EM132961865

Company Blue Mont has a shareholders' equity composed of a capital of 100 million shares with a par value of £1 each, plus £400 million in retained earnings. The company proposes a final dividend of 15 pence per share for the year ended 30 September 2017. The shareholders are given the choice between a payment in cash or as a scrip dividend. The scrip dividend is one ordinary share for every 16 already held. Holders of 20 million shares have decided to take the scrip alternative. The average market price of the share is £2.4.

Required:

Problem a. Show the accounting entries of the payment of dividends in cash and in shares and explain your calculations.

Problem b. List and describe the components of the ordinary shareholders' equity capital.

Problem c. Define comprehensive income and explain how it differs from the net income shown in the Profit and Loss account.

Problem d. Explain the concept of the option overhang and provide a numerical example.