Reference no: EM133081361
Problem 1 - Seles 4 Corp.'s charter authorized issuance of 100,000 ordinary shares of €10 par value and 50,000 shares of €50 preference shares. The following transactions involving the issuance of shares were completed. Each transaction is independent of the others.
1. Issued a €10,000, 9% bond payable at par and gave as a bonus one preference share, which at that time was selling for €106 a share.
2. Issued 500 ordinary shares for machinery. The machinery had been appraised at €7,100; the seller's book value was €6,200. The most recent market price of the ordinary shares is €16 a share.
3. Issued 375 ordinary shares and 100 preference shares for a lump sum amounting to €10,800. The ordinary shares had been selling at €14 and the preference shares at €65.
4. Issued 200 shares of ordinary and 50 shares of preference for furniture and fixtures. The ordinary shares had a fair value of €16 per share; the furniture and fixtures have a fair value of €6,500.
Required - Record the transactions listed above in journal entry form.
Problem 2 - Hatch3 plc has two classes of share capital outstanding: 8%, £20 par preference and £5 par ordinary. At December 31, 2018, the following accounts were included in equity.
Share Capital-Preference, 150,000 shares £3,000,000
Share Capital-Ordinary, 2,000,000 shares 10,000,000
Share Premium-Preference 200,000
Share Premium-Ordinary 27,000,000
Retained Earnings 4,500,000
The following transactions affected equity during 2019.
Jan. 1 30,000 preference shares issued at £22 per share.
Feb. 1 50,000 ordinary shares issued at £20 per share.
June 1 2-for-1 share split (par value reduced to £2.50).
July 1 30,000 ordinary treasury shares purchased at £10 per share. Hatch uses the cost method.
Sept. 15 10,000 treasury shares reissued at £11 per share.
Dec. 31 The preference dividend is declared, and an ordinary dividend of 50 pence per share is declared.
Dec. 31 Net income is £2,100,000.
Required - Prepare the equity section of the statement of financial position for Hatch plc at December 31, 2019. Show all supporting computations.
Problem 3 - Before Smith Ltd. engages in the treasury share transactions listed below, its general ledger reflects, among others, the following account balances (par value is £30 per share).
|
Share Premium-Ordinary
|
Share Capital-Ordinary
|
Retained Earnings
|
|
£99,000
|
£270,000
|
£80,000
|
Required - Record the treasury share transactions (given below) under the cost method of handling treasury shares; use the FIFO method for purchase-sale purposes.
a. Bought 380 treasury shares at £40 per share. b. Bought 300 treasury shares at £45 per share. c. Sold 350 treasury shares at £42 per share.
d. Sold 110 treasury shares at £38 per share.
Problem 4 - The books of Conchita 7 Inc. carried the following account balances as of December 31, 2019.
Cash R$ 195,000
Share Capital-Preference (6% cumulative, non-participating, R$50 par) 300,000
Share Capital-Ordinary (no-par value, 300,000 shares issued) 1,500,000
Share Premium-Preference 150,000
Treasury Shares (ordinary 2,800 shares at cost) 33,600
Retained Earnings 105,000
The company decided not to pay any dividends in 2019.
The board of directors, at their annual meeting on December 21, 2020, declared the following: "The current year dividends shall be 6% on the preference and R$0.30 per share on the ordinary. The dividends in arrears shall be paid by issuing 1,500 treasury shares." At the date of declaration, the preference is selling at R$80 per share, and the ordinary at R$12 per share. Net income for 2020 is estimated at R$77,000.
Required - a. Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.
b. Could Conchita SA give the preference shareholders 2 years' dividends and ordinary shareholders a 30 cents per share dividend, all in cash?
Problem 5 - On January 1, 2019, Garfield AG made an investment in €80,000 of the 9%, 5-year bonds of Chester Corporation for €74,086, which provides an 11% return. Garfield plans to hold these bonds to collect contractual cash flows. Prepare Garfield's journal entries for
(a) the purchase of the investment, and
(b) the receipt of annual interest on December 31 and discount amortization.
Problem 6 - Use the information from Problem 5 but assume the bonds are purchased as a held-for-collection and selling investment. Prepare Garfield's journal entries for
(a) the purchase of the investment,
(b) the receipt of annual interest and discount amortization, and
(c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of €75,500.
Problem 7 - Use the information from Problem 5 but assume Garfield plans to actively trade the bonds to profit from market interest rate changes. Prepare Garfield's journal entries for
(a) the purchase of the investment,
(b) the receipt of annual interest and discount amortization, and
(c) the year-end fair value adjustment. The bonds have a year-end fair value of €75,500.
Problem 8 - Presented below are two independent cases related to held-for-collection and selling debt investments.
|
|
Case 1
|
Case 2
|
|
Amortized cost
|
$40,000
|
$100,000
|
|
Fair value
|
30,000
|
110,000
|
|
Expected credit losses
|
4,000
|
4,000
|
Required - For each case, determine the amount of impairment loss, if any, and the journal entry to record the impairment.