Reference no: EM132598011
Questions -
Q1. Tsui Corporation went through a financial reorganization by writing down its buildings by $107,000 and eliminating its deficit, which was $182,000 before the reorganization. As part of the reorganization, the creditors agreed to take back 55% of the common shares in lieu of payment of the debt of $1.8 million (notes payable). Using the three-step method, prepare the entries to record the financial reorganization assuming that Tsui follows ASPE.
Q2. (Preferred Dividends) McNamara Limited's ledger shows the following balances on December 31, 2020:
Preferred shares outstanding: 25,000 shares $ 625,000
Common shares outstanding: 40,000 shares 3,000,000
Retained earnings 890,000
Instructions - Assuming that the directors decide to declare total dividends in the amount of $445,000, determine how much each class of shares should receive under each of the conditions that follow. Note that one year's dividends are in arrears on the preferred shares, which pay a dividend of $1.50 per share.
a. The preferred shares are cumulative and fully participating. Round the intermediate percentage calculation to four decimal places and the final amount to the nearest dollar.
b. The preferred shares are non-cumulative and non-participating. Round to the nearest dollar.
c. The preferred shares are non-cumulative and are participating in distributions in excess of a 10% dividend rate on the common shares. Round the intermediate percentage calculation to four decimal places and the final amount to the nearest dollar.
Q3. Transactions of Kent Corporation are as follows.
1. The company is granted a charter that authorizes the issuance of 150,000 preferred shares and an unlimited number of common shares.
2. The founders of the corporation are issued 10,000 common shares for land valued by the board of directors at $210,000 (based on an independent valuation).
3. Sold 15,200 preferred shares for cash at $110 per share.
4. Repurchased and cancelled 3,000 outstanding preferred shares for cash at $100 per share.
5. Paid $85,000 in dividends that were declared in the previous period.
6. Repurchased for cash and cancelled 500 of the outstanding common shares issued in item 2 above at $49 per share.
7. Issued 2,000 preferred shares at $99 per share.
Instructions -
a. Prepare entries in journal form to record the transactions listed above. No other transactions affecting the capital share accounts have occurred.
b. Assuming that the company has retained earnings from operations of $1,032,000, prepare the shareholders' equity section of its SFP after considering all the transactions above.
Q4. Stellar Corp. had the following shareholders' equity on January 1, 2020:
Common shares, unlimited number authorized, 100,000 shares issued and outstanding $270,000
Contributed surplus 310,000
Retained earnings 2,300,000
Total shareholders' equity $2,880,000
The contributed surplus arose from net excess of proceeds over cost on a previous cancellation of common shares. Stellar prepares financial statements in accordance with ASPE.
The following transactions occurred, in the order given, during 2020.
1. Subscriptions were sold for 12,000 common shares at $26 per share. The first payment was for $10 per share.
2. The second payment for the sale in item 1 above was for $16 per share. All payments were received on the second payment except for 2,000 shares.
3. In accordance with the subscription contract, which requires that defaulting subscribers have all their payments refunded, refund cheques were sent to the defaulting subscribers. At this point, common shares were issued to subscribers who had fully paid on the contract.
4. Repurchased 22,000 common shares at $29 per share. They were then retired. Round to two decimal places when calculating average price per share.
5. Sold 5,000 preferred shares and 3,000 common shares together for $300,000. The common shares had a fair value of $31 per share.
Instructions -
a. Prepare the journal entries to record the transactions for the company for 2020.
b. Assume that the subscription contract states that defaulting subscribers forfeit their first payment. Prepare the journal entries for items 2 to 4 above. Round to two decimal places when calculating average price per share.
Q5. Guoping Limited provides you with the following condensed SFP information:
Assets
Current assets $40,000
Investments in Geneva Inc.- fair value through net income (10,000 shares) $60,000
Equipment (net) $250,000
Intangibles $60,000
Total assets $410,000
Liabilities and Shareholders' Equity
Current and long-term liabilities $100,000
Shareholders' equity
Common shares 10,000 shares issued $130,000
Retained earnings 180,000 310,000
Total liabilities and shareholders' equity $410,000
Instructions -
a. For each transaction below, indicate the dollar impact (if any) on the following four items: (1) total assets, (2) common shares, (3) retained earnings, and (4) shareholders' equity. (Each situation is independent.)
1. The company declares and pays a $0.50 per share dividend.
2. The company declares and issues a 10% stock dividend at their fair value when the shares' market price is $12 per share.
3. The company declares and issues a 40% stock dividend at their fair value when the shares' market price is $17 per share.
4. The company declares and distributes a property dividend. The company gives one Geneva share for every two company shares held. Geneva is selling for $8 per share on the date when the property dividend is declared.
5. The company declares a 3-for-1 stock split and issues new shares.