Lehman Ltd Has 50 000, 10 % Cumulative Preference Shares

question 18

Multiple Choice

Lehman Ltd has 50 000, 10 % cumulative preference shares fully paid to $2.00 which it wishes to replace with 50 000, 6 % cumulative preference shares fully paid to $2.00.It can do this provided it pays a penalty equal to 5% of the issued price of the preference shares.The penalty is by way of a special dividend.
-Lehman Ltd classifies these preference shares as debt.The penalty payment will be recognised in Lehman's financial statements:

• A)in the profit or loss statement as an expense of $2 500
• B)in the profit or loss statement as an expense of $5 000
• C)in the changes in equity statement as a reduction in retained profits of $2 500
• D)in the changes in equity statement as a reduction in retained profit of $5 000

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