Reference no: EM132482497
Question a) Prepare correct entries for dividends and stock split.
Before preparing financial statements for the current year, the chief accountant for Patel Ltd. provided the following information regarding the accounting for dividends and stock splits:
1. Patel has 20,000, $4 noncumulative preferred shares issued. It paid the preferred shareholders the quarterly dividend, and recorded it as a debit to Dividends Expense and a credit to Cash.
2. A 5% stock dividend (1,000 shares) was declared on the common shares when the fair value per share was $12. To record the declaration, Retained Earnings was debited and Dividends Payable was credited. The shares have not been issued yet.
3. The company declared a 2-for-1 stock split on its 20,000, $4 noncumulative preferred shares. The average per share amount of the preferred shares before the split was $70. The split was recorded as a debit to Retained Earnings of $1.4 million and a credit to Preferred Shares of $1.4 million.
Question b) Prepare income statement with discontinued items and statement of comprehensive income.
Top Brands Limited reported the following selected information for the year ended March 31, 2017:
Advertising expense $ 7,000
Interest expense $ 5,500
Cash dividends-common 5,000
Loss on discontinued operations 18,000
Depreciation expense 3,000
Loss on equity investments 3,000
Fees earned 62,000
Rent revenue 34,000
Gain on disposal of equipment 1,500
Retained earnings, April 1, 2016 19,000
Income tax payable 6,600
Telephone expense 8,000
The company's income tax rate is 30%. The company reports gains and losses on its equity investments as other comprehensive income.
Instructions Make an income statement and a separate statement of comprehensive income for Top Brands Limited.
Question c) Make a statement of retained earnings with correction of prior period error.
On January 1, 2017, Fyre Lite Corporation had retained earnings of $650,000. During the year, Fyre Lite had the following selected transactions:
1. Declared and paid cash dividends, $245,000.
2. Earned profit before income tax, $750,000.
3. Corrected a prior period error of $85,000, before income tax, which resulted in an understatement of profit in 2016.
4. Reacquired 25,000 common shares for $50,000 more than the original issue price. This was the first time the company had ever reacquired its own shares.
5. Completed a 3-for-1 stock split of the common shares.
Fyre Lite has a 25% income tax rate and reports under ASPE.
Instructions: Make a statement of retained earnings for the year ended December 31, 2017.
Question d) Make a statement of changes in shareholders' equity.
On January 1, 2017, Marchelle Incorporated had an unlimited number of common shares authorized, 220,000 issued, and the balance in the Common Shares account was $2.2 million. The company reported a balance in Retained Earnings on this date of $850,000 and accumulated other comprehensive income of $27,000. During the year, the following occurred:
1. Issued 80,000 common shares at $15 per share on July 1.
2. Declared a 3-for-2 stock split on September 30 when the fair value was $19 per share.
3. Declared a 5% stock dividend on December 9 to common shareholders of record at December 30, distributable on January 16, 2018. At the declaration date, the fair value of the common shares was $22 per share.
4. Earned profit of $390,000 for the year.
5. Recognized a loss on equity investments of $38,000 before tax, which will be reported as other comprehensive income. The company's income tax rate is 25%.
Instructions : Make a statement of changes in shareholders' equity for the year ended December 31, 2017.
Question e) Prepare journal entries for shareholder transactions and make a statement of changes in shareholders' equity.
Ruby Red Rental Corporation had the following balances in its shareholders' equity accounts at January 1, 2017:
Accumulated other comprehensive income (loss) $ (25,000)
Contributed surplus-reacquisition of common shares 540,000
Retained earnings 1,500,000
Common shares (32,000 shares) 800,000
Ruby Red had the following transactions and events during 2017:
Feb. 2 Repurchased 1,000 shares for $44,500.
Apr. 17 Declared and paid cash dividends of $70,000.
Oct. 29 Issued 2,000 shares for $104,000 cash.
Dec. 31 Reported comprehensive income of $425,000, which included other comprehensive income of $40,000.
Question f) Calculate earnings per share.
On December 31, 2016, Nettle Corporation had 5,000, $2 preferred shares and 80,000 common shares issued. During 2017, the company completed the following share transactions:
Apr. 1 Sold 10,000 common shares for $5,000 cash.
Sept. 30 Reacquired 5,000 common shares for $1,800 cash.
Nettle's profit in 2017 was $520,000.
Instructions
Question (a) Calculate the weighted average number of common shares for 2017.
Question (b) Calculate earnings per share under each of the following independent assumptions:
(i) Preferred shares are cumulative and dividends were
i.declared.
ii.not declared.
(ii) Preferred shares are noncumulative and dividends were
i.declared.
ii.not declared.
Question g) Calculate ratios and comment.
The following financial information is available for Longmire Lumber Ltd. as at December 31 (in thousands, except for per share amounts):
2017 2016 2015
Profit $1,978 $2,131 $2,663
Preferred share dividends (total) $73 $43 $30
Weighted average number of common shares 502 500 501
Dividends per common share $2.50 $2.25 $2.10
Market price per common share $43.00 $49.75 $56.25
Instructions
Question (a) Calculate the earnings per share, price-earnings ratio, and payout ratio for the common shareholders for each of the three years.
Question (b) Using the information in part (a), comment on Longmire's earnings performance and dividend record.