Intermediate Financial Accounting - Chapter 15 Solutions
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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian Edition CHAPTER 15 SHAREHOLDERS’ EQUITY SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 15-1 Of the three primary forms of business organization—the proprietorship, the partnership, and the corporation—the most common form of business is the corporate form. The main advantage of incorporating is that a corporation is a separate legal entity, so the entity’s owners have greater legal protection against lawsuits. An additional important advantage is that incorporation involves the issue of shares, which gives access to capital markets for companies that choose to raise funds in this way. Corporations may also receive more favourable tax treatment than other forms of business organizations. Finally, corporations have a continuous life unlike a proprietorship or partnership. Since a corporation is a separate legal entity, its continuance as a going concern is not affected by the withdrawal, death, or incapacity of a shareholder, employee, or officer. Disadvantages of a corporation are increased government regulations and the fact that corporations are taxed as a separate legal entity, thus not allowing losses to be utilized by the shareholders. Solutions Manual 15-1 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 15-2 A dividend is a pro rata (equal) distribution of a portion of a corporation’s retained earnings to its shareholders. There are basically two classes of dividends: 1. Those that are a return on capital (a share of the earnings) 2. Those that are a return of capital, referred to as liquidating dividends. The various types of dividends, and a brief description, are: Cash Dividends — To pay a cash dividend, a corporation must have retained earnings, adequate cash, and dividends declared by the board of directors. While many companies pay a quarterly dividend, there are companies, called growth companies, which pay no dividends but reinvest earnings in the company so that it can grow. Dividends in Kind —Instead of distributing cash, the corporation distributes some of its other assets, such as shares of other corporations, to its shareholders in proportion to their shareholdings. Property dividends or dividends in specie (Latin for "in kind") are those paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation. They are relatively rare and most frequently are securities of other companies owned by the issuer, however they can take other forms, such as products and services. Solutions Manual 15-2 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 15-2 (Continued) Stock Dividends — A stock dividend is a distribution of the corporation’s own shares to shareholders. A stock dividend is distributed in shares. A stock dividend results in a decrease in retained earnings and an increase in share capital. It does not de-crease total shareholders’ equity or total assets. Stock dividends are generally issued: (a) by companies that do not have adequate cash to issue a cash dividend, (b) to increase the marketability of shares, and/or (c) to emphasize that a portion of shareholders’ equity has been permanently reinvested in the legal capital of the business and is unavailable for cash dividends. Liquidating Dividends — A liquidating dividend is a payment of a dividend to shareholders that exceeds the company's retained earnings. Once retained earnings is depleted, capital accounts such as contributed surplus is decreased to make up for the remaining dividend to be paid to shareholders. When a liquidating dividend occurs, it is considered to be a return of investment instead of profits. Investors generally prefer cash dividends, and they are the most common in practice, but stock dividends are also declared fairly often. A cash dividend transfers the wealth inside the corporation to the shareholder in cash, allowing the shareholder to use the cash as desired. Solutions Manual 15-3 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Tenth Canadian Edition BRIEF EXERCISE 15-3 Series A: The shares would be reported as a liability since they are “mandatorily redeemable” i. the company is obligated to buy back the shares from the holder. . As well. there is an obligation for the company to pay cash at some point in the future. Solutions Manual 15-4 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Weygandt. Ltd. voting rights appear not to be included. When the term expires. Class A: The shares would be considered “in-substance” common shares since they are subordinated to Series A and B shares for dividend and asset distribution and they enjoy the risks and rewards of ownership by participating in the earnings and losses of the company. distribution. McConomy Intermediate Accounting. The shares do not have the full risks and rewards of ownership that common shares have.Kieso.e. or transmission of this page is strictly prohibited. Wiecek. Warfield. As well. the shares have voting rights. Series B: The shares have the characteristics of preferred shares since they have a stated dividend and they are cumulative. Unauthorized copying. Young. ... BRIEF EXERCISE 15-5 (a) March 1 Cash ..000 (b)(1) When shares are issued on account....... or transmission of this page is strictly prohibited.... 91..000 Dec.......... This is similar to the accounting for shares sold on a subscription basis.... Tenth Canadian Edition BRIEF EXERCISE 15-4 June 1 Share Subscriptions Receivable ..... 50........ 25......950 1 Cash ($91.. ... It is also similar to the U....000 1 Cash (45% X $91.......... 40.950) ........ distribution..............S. 91.. 91.. Unauthorized copying. Wiecek.Kieso..........500 Accounts Receivable .....000 – $40........... 50.......000) ..... McConomy Intermediate Accounting. 12.... Warfield.950 Share Subscriptions Receivable ..... ASPE [CICA Handbook..... Weygandt....500 Common Shares (1. 40.......000 X $25)......000 Common Shares . 12....... as the SEC requires companies to use this approach because the risk of collection on these types of transactions is often very high...050 Share Subscriptions Receivable ............ Solutions Manual 15-5 Chapter 15 Copyright © 2013 John Wiley & Sons Canada......... Part II – AS risk of a reduction in value of the shares.. approach.050 1 Common Shares Subscribed . Young......000 Common Shares Subscribed .. Ltd..... 91....... 64..... Unauthorized copying........................300 Common Shares ..... Young...... but the conceptual framework would support presenting the receivables as a reduction of shareholders’ equity unless there is substantial evidence that the company is not at risk for declines in the value of the shares and there is reasonable assurance that the company will collect the amount in cash...... Ltd.. 16........700) ............................ Solutions Manual 15-6 Chapter 15 Copyright © 2013 John Wiley & Sons Canada........... Weygandt............ no explicit guidance is given with respect to accounting for reacquisition of shares...Kieso........... As noted above............ Wiecek..000 – $1... BRIEF EXERCISE 15-6 Cash ($66. distribution...... McConomy Intermediate Accounting...... 44... Warfield. although the accounting may end up the same as in part (a).......... or transmission of this page is strictly prohibited........ .......... this receivable should be segregated from trade accounts receivable if not treated as a reduction of shareholders’ equity........... Tenth Canadian Edition BRIEF EXERCISE 15-5 (Continued) (b)(2) IFRS is not definitive on the issue of presentation of the receivable for shares issued on account.800 Retained Earnings ...... 28......000 Cash ($56 X 800) .. 64..800 (b) Under IFRS...300 BRIEF EXERCISE 15-7 (a) Common Shares ($21 X 800) .................... using basic principles under IFRS............ ..................700 24...... Cash ($40 X 600) ........... Sep....... Unauthorized copying....... ........ Young............ Wiecek.... Ltd..... 9 Dividends Payable . Weygandt.... or transmission of this page is strictly prohibited......... distribution...... 1 Retained Earnings . 900. using basic principles under IFRS.......... no explicit guidance is given with respect to accounting for reacquisition of shares............. Contributed Surplus.. McConomy Intermediate Accounting........................... 900.......................... 4. 15 No entry.................. Retained Earnings .....................000 Cash ..............000 Solutions Manual 15-7 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. BRIEF EXERCISE 15-9 Aug.............800 12....................500 6... although the accounting may end up the same as in part (a)..............Kieso.........................000 Dividends Payable ......................................................000 (b) Under IFRS.... Tenth Canadian Edition BRIEF EXERCISE 15-8 (a) Common Shares ($8 X 600) ....... 900... Warfield................. 900......................................000 Aug.......... ...000) 450.. or transmission of this page is strictly prohibited.. 1........... Young.......000 Solutions Manual 15-8 Chapter 15 Copyright © 2013 John Wiley & Sons Canada..000 Property Dividends Payable ....000 Oct............000 – $850.300. 8 No entry.. 23 Property Dividends Payable ............000 FV-NI Investments ....................300. distribution............. 1... Warfield. 21 FV-NI Investments Unrealized Gain or Loss ($1....................... Wiecek.. Weygandt..............300....... Ltd................000 450..........300.300.....Kieso....... Oct...... Tenth Canadian Edition BRIEF EXERCISE 15-10 Sep.. ... 1.............. 1... McConomy Intermediate Accounting..........000 Retained Earnings ..... Unauthorized copying................... .......700....... 400..000 *Any balance in contributed surplus........ 400.............000 X $5) No entry to the general ledger......000 Dividends Payable ....... distribution....... or transmission of this page is strictly prohibited............................ 150................000 Common Shares* ........................ would be debited first.........000 Common Shares.......Kieso..........00 ($20 X 1/4) $3................... Tenth Canadian Edition BRIEF EXERCISE 15-11 Apr............. 250............................000 BRIEF EXERCISE 15-13 (a) (b) (c) (d) 740... ......... Warfield.................000 (740.......000 Common Stock Dividends Distributable .......000) Distribution Date: Common Stock Dividends Distributable ................... 20 Retained Earnings .............................000 June 1 Dividends Payable .................... BRIEF EXERCISE 15-12 Declaration Date: Retained Earnings .......................................... but a formal record of the split is made in Directors’ Minutes and as necessary in corporate records to ensure both the split and the new number of shares are properly tracked and reported.................. 810..260........... 400. (450....... McConomy Intermediate Accounting............. 810...................... Weygandt................000 X 6% X $30 = $1...... if related to the same class of shares. Solutions Manual 15-9 Chapter 15 Copyright © 2013 John Wiley & Sons Canada... Young.000 X 4) $5....... Ltd...........000 Cash ... Wiecek........ 810.... Unauthorized copying....................000 (185..000 810.... ............ (80.. 1. 320......... 2014 Share Capital Common shares...... or transmission of this page is strictly prohibited.................... $250....000) 170.... Ltd........000 Total share capital ....... McConomy Intermediate Accounting. Wiecek................... 480...... Unauthorized copying............Kieso....... 560.............. Young.000 Solutions Manual 15-10 Chapter 15 Copyright © 2013 John Wiley & Sons Canada......... Weygandt....................................................... Tenth Canadian Edition BRIEF EXERCISE 15-14 LU CORPORATION Shareholders’ Equity As at December 31..000 Less: share subscriptions receivable ............................... distribution...................340....... Warfield..000 Total paid-in capital ..........700........ no par value .... .........000 Contributed surplus ...... 800.............000 Total shareholders’ equity ......000 Accumulated other comprehensive income ...............000 Retained earnings ...... $2.............000 Common shares subscribed ........ $ 310......... 830.500) (70. Unauthorized copying.000 Retained Earnings $1.000 $127.500 .000 (25. 2014 Issued common shares Repurchase of shares Declared dividends Comprehensive income: Net income Holding gain-OCI Bal. 2014 32.000) $800.000 Accumulated Other Comprehensive Income $40. Weygandt.000 100. Young.000 Solutions Manual 15-11 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.485. Jan.000 25. 2014 Share Capital Number of Legal Shares Capital Bal. Wiecek.000 $65.000 (17.000) 400.000 2. Dec.000 (1.500) (70. 1.000 $875. 25.Kieso.000 100. or transmission of this page is strictly prohibited. distribution. 31.000) Other Contributed Capital $145. Ltd. Warfield.897.500.000 $2.000 33.500 $1. Tenth Canadian Edition BRIEF EXERCISE 15-15 (a) THE SAWGRASS CORPORATION Statement of Changes in Shareholders' Equity Year Ended December 31.000 Total $2.000 (42. McConomy Intermediate Accounting.000) 400. Wiecek. 1........ McConomy Intermediate Accounting... Solutions Manual 15-12 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.......500 Total paid-in capital ....830........ changes in retained earnings are usually presented in a statement of retained earnings..000 Contributed surplus .... distribution......... $ 875....... no par value (33...... Warfield.Kieso....... 2014 Share Capital Common shares... Young..897.......................................... unlimited shares authorized) ................... or transmission of this page is strictly prohibited............. and changes in capital accounts are usually presented in the notes to financial statements.......... .....002....... 127... $2......... Weygandt.................500 Retained earnings .........000 shares issued...000 Accumulated other comprehensive income .................000 Total shareholders’ equity ... Unauthorized copying.......500 (c) Other comprehensive income and accumulated other comprehensive income are not recorded under ASPE... 1.. Ltd....... Under ASPE... Tenth Canadian Edition BRIEF EXERCISE 15-15 (Continued) (b) THE SAWGRASS CORPORATION Statement of Financial Position (Partial) December 31... 65. distribution.000 – $24.000 (2) Payout ratio: Cash dividends to common Net income – preferred dividends $124.39% 1 Average common shareholders’ equity = [($3.000 – $24. Weygandt. Tenth Canadian Edition BRIEF EXERCISE 15-16 (1) Rate of return on common shareholders’ equity: Net income – preferred dividends Average common shareholders’ equity $720.881.000 2 $2.000 – $24. .500 2 Preferred dividends = 4% X $600. Ltd.Kieso.975. McConomy Intermediate Accounting.000) + ($3.70 3 = 11 times 3 Earnings per share = (Net income – preferred dividends) weighted-average number of common shares = ($720.000 = 14. or transmission of this page is strictly prohibited.000 $600.000 – $600.70 Solutions Manual 15-13 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.500 1 = 23.000) 80.46 $8. Young.000)] 2 = $2.000 = $8. Unauthorized copying.000 = $24.975.000 – $24. Warfield.270.000 $720. Wiecek.37% (3) Price earnings ratio: Market price of common shares Earnings per share $97. ......525........000 (b) Cash...... also known as “employing leverage” to the advantage of the company................... Young...000 Solutions Manual 15-14 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.. Unauthorized copying........ Wiecek....000 ($5..... Ltd........000 (5) Rate of return on total assets: Net income – preferred dividends Average total assets $720..............000 4 Common shareholders’ equity = ($3..000) = $3.41% Since Arthur’s rate of return on shareholders’ equity exceeds the rate of return on assets....... *BRIEF EXERCISE 15-17 (a) Cash....000 .......... 79... 79.......... or transmission of this page is strictly prohibited. Weygandt.... McConomy Intermediate Accounting........000) / 2 = 14....881... Warfield.....000 X $11) .....000 Common Shares.. 22. distribution..$600....... Tenth Canadian Edition BRIEF EXERCISE 15-16 (Continued) (4) Book value per share: Common shareholders’ equity Number of outstanding common shares $3...000 – $24.......... 57...136................. the company is trading on the equity......................281.... 79.01 80.......... .000 Common Shares (2..000 4 = $41.....000 + $4......281..000 Contributed Surplus .Kieso........ Warfield..........800......000 X $75) ................................... 75............................500 Nov.......... Wiecek........000 *Any balance in contributed surplus. Common Shares ................................000 Deficit .....................................000 *BRIEF EXERCISE 15-19 Sept...............000 Treasury Shares (1.................000 Notes Payable ....500 Nov................000 X $55) .................. Unauthorized copying.............. 80....... 20..... 55........................ 112.............. *BRIEF EXERCISE 15-20 Deficit .................. 5.............500 X $75)......000 Retained Earnings* ........ 289.......800...000 Common Shares..500 Cash .. 75................... 5 Treasury Shares (1.. 20 Cash (1.................... if related to the same class of shares...........000 X $75) ................... Weygandt....... 20 Cash (1........... 1............................................ 112........ 5 Treasury Shares (1...................................................000 Solutions Manual 15-15 Chapter 15 Copyright © 2013 John Wiley & Sons Canada..........500 Cash ............000 289.................................................. .. or transmission of this page is strictly prohibited.................. Young..............................Kieso........ ($182...500 X $75)........... 1.000 Contributed Surplus ...... 112................000 Buildings........... would be debited first...................000 + $107..... 112........ McConomy Intermediate Accounting....................000 Treasury Shares (1........ 107..................... Tenth Canadian Edition *BRIEF EXERCISE 15-18 Sept.............................................000) 107.......................................... distribution.......000 X $80) ............. Ltd......................... ....000 60..... 520....... Ltd... 60.. Common Shares ..............000 X $23) .. distribution.....000 Cash (32.. 10 Mar.000 187....000 360.................. Common Shares ....500 X $125) .000 Cash (20....... 1 Nov...000 19..000 520.023. 1 April 1 May 1 Aug.600.... 19...................023........... Preferred Shares.500 X $16) ..500 4. 187......... 1 Sept.... 2. 4.000 Land .... Preferred Shares..........000 X $119) .......... 360.000 X $18) . or transmission of this page is strictly prohibited....500 Solutions Manual 15-16 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Common Shares ... Tenth Canadian Edition SOLUTIONS TO EXERCISES EXERCISE 15-1 (10-15 minutes) Jan........ Wiecek.... ..... Weygandt..000 Cash (1.........600................ Unauthorized copying....... McConomy Intermediate Accounting.000 Cash (17... Common Shares ....Kieso......000 2. 1 Cash (200............... Warfield........000 Legal Expense ..... Young........ Common Shares .......... .000 shares X $22 each) Common Shares Subscribed ........ Young.....Kieso....000 Collection of Balance: Cash ($880.000 X ..........000 Share Subscriptions Receivable ....10 of the CICA Handbook.......... .. or transmission of this page is strictly prohibited............ the company would likely end up treating it the same as noted above.. specific guidance in not given but using first principles...... Warfield......... it makes sense to record as a reduction of equity................ 308...000 Common Shares ...000 Issuance of Shares: Common Shares Subscribed ..000 – $308....35) .. 572.. Solutions Manual 15-17 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.... Weygandt........000 (40... Wiecek.... Part II requires that share purchase loans receivables must be shown as contra equity unless the borrower is fully responsible for declines in value of the shares and there is reasonable assurance that the full amounts will be collected....... Note that Section 3251. In the United States.......... 880..... whether the Share Subscriptions Receivable account should be presented as an asset or a contra equity account is a matter of professional judgement... McConomy Intermediate Accounting.................... Under IFRS.... the SEC requires the Share Subscriptions Receivable account to be presented as a reduction of equity...000 (b) Under ASPE.. 572..... distribution... although conceptually.......... 308.......... Unauthorized copying... 880.... 880......000 Share Subscriptions Receivable ........ 880..000 Collection of Down Payments: Cash ($880................ Ltd............. Tenth Canadian Edition EXERCISE 15-2 (15-20 minutes) (a) Original Subscription: Share Subscriptions Receivable ..000) ...... the limit to the liability of the subscriber in case of corporate failure is the subscription price. Unauthorized copying. . rather than the amount paid up at the time of the failure. Wiecek. Weygandt. Tenth Canadian Edition EXERCISE 15-2 (Continued) (c) If a subscriber is unable to pay all instalments and therefore defaults on the agreement. or transmission of this page is strictly prohibited. the possibilities include: (1) returning the amount already paid by the subscriber (possibly after deducting some expenses). distribution. (2) treating the amount paid as forfeited and therefore transferring it to the Contributed Surplus account.Kieso. McConomy Intermediate Accounting. Warfield. Note that in some jurisdictions. Solutions Manual 15-18 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Young. or (3) issuing fewer shares to the subscriber so that the number of shares issued is equivalent to what the subscription payments already received would have paid for fully. Ltd. .. Warfield........000 Common Shares........................Kieso.... In this case...... Unauthorized copying. Young.. 14.13).10 and ........ 17.... 130........ distribution.......... Cash [(6.....................000 Common Shares............. Land .....000] ............. the appraisal supplies evidence of the value....... 148....... Wiecek............000 2. Ltd. IFRS is a constraint since the company is a public company as noted by the fact that the shares trade on a national stock exchange.... McConomy Intermediate Accounting.000 Note: The appraised value of the land is used since IFRS 2 Share Based Payment assumes that the fair value of the items acquired can be measured in most cases (IFRS 2.... Solutions Manual 15-19 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.. Common Shares (500 X $34) ... The original issue price of the individual shares being repurchased is not used................. Tenth Canadian Edition EXERCISE 15-3 (10-15 minutes) (a) 1............ 2.................. 130....000 X $25) – $2......... 3...500 Cash (500 X $29).............. 148.. Weygandt....500 (b) Share repurchases are recorded at the average issue price or carrying amount per share...000 Contributed Surplus .... or the average price at which the shares were issued for that class of shares......... or transmission of this page is strictly prohibited.... The original issue price of the individual shares repurchased would be considered in the total issue price for the class of shares but would be averaged with all other shares of the same class......... ......... Unauthorized copying. 17..... 400................................... May 31 Cash ... 2... Ltd..... Tenth Canadian Edition EXERCISE 15-4 (15-20 minutes) May 12 The entry is correct.... McConomy Intermediate Accounting. 15.......000 The transaction involves the issue of preferred shares than common shares................. Warfield..................................000 Cash (1...... May 10 Cash . 400..000 X $17) .........000 X $15) ...000 9.000 Preferred Shares .. Solutions Manual 15-20 Chapter 15 Copyright © 2013 John Wiley & Sons Canada..... The difference between the average issue price per share and the purchase price is credited to Contributed Surplus...............000 No gain can be recognized on the issuance of shares..............000 Contributed Surplus ........ or transmission of this page is strictly prohibited..... The no par value common shares are recorded at their issue price.Kieso........ Young.... Common Shares ...... Weygandt..000 The share account is debited for the average issue price per share in the account ($17 per share based on the May 12th transaction)....... Wiecek.... 9............ ......... distribution.......... May 15 rather Common Shares (1..... Kieso.000 $300.586 $95.000 $95.600 = $12. McConomy Intermediate Accounting.986 $95. Ltd.000 $580.000 $74. ** $95.000 – $21.000 Total carrying amount $42.400 Solutions Manual 15-21 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 – $42.414 $25.000 $580. Wiecek. Warfield.000 Dividends in arrears Current dividend Pro rata share to common ($280.000) X $12.000 – $19.986 $25.400** ($280.000 X 7%*) Balance dividend pro rata ($300.000 $580.000) X $12.414 19. Weygandt.000 $95.600 6. Unauthorized copying.000 $42. non-participating $21.400 Carrying amount: Preferred: $100 X 3.586 5. nonparticipating $63. .000 (b) Preferred share is cumulative.000 $280.414 _______ $69.000 21.000 * Dividend rate per share of $7 divided by $100 stated value for the preferred shares. or transmission of this page is strictly prohibited.000 Common: $40 X 7.600 6.000 $19. Young. distribution.000 $32.414 5.000 21. Tenth Canadian Edition EXERCISE 15-5 (10-15 minutes) Preferred Common Total (a) Preferred share is non-cumulative. participating $69.000 (c) Preferred share is cumulative. 000____ 90. and/or if the preferred shares are participating.24 If the preferred shares are cumulative and dividends in arrears are paid in the year.000 = 1.000 – 21.414 = 1. Ltd.000 = 1. . Tenth Canadian Edition EXERCISE 15-5 (Continued) (d) Current year payout ratio under (a): Payout ratio = Cash dividends to common__ Net income – Preferred dividends = ____74. The investor should consider that the company’s payout ratio may appear higher due to certain preferred share dividend features.000____ 90.Kieso. the company’s payout ratio may appear higher than it would have been if the preferred shares were not cumulative or participating. and not necessarily due to excess distribution of profit to common shareholders. McConomy Intermediate Accounting. Warfield. Young. A potential investor may be interested in earning dividend income through ownership of the company’s common shares. Unauthorized copying. or transmission of this page is strictly prohibited. distribution.07 Current year payout ratio under (b): Payout ratio = Cash dividends to common__ Net income – Preferred dividends = ____32.000 – 63. and may require a high enough payout ratio to provide a good yield on the shares.000 – 69. Wiecek.586____ 90. Solutions Manual 15-22 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.19 Current year payout ratio under (c): Payout ratio = Cash dividends to common__ Net income – Preferred dividends = ____25. Weygandt. 000 .500 120.2414%***) 32.758 157.9655%*) 18. Tenth Canadian Edition EXERCISE 15-6 (10-15 minutes) (a) One year in arrears* Current year** Preferred Common $ 37. McConomy Intermediate Accounting.000 $445.035 $388.500 $445. Unauthorized copying.000 $445.000 337.625.500 107.000 shares)] $37.000 * **Dividend rate on common shares Less: matching amount ($37.$255.000 Participating (2.000) Additional rate to common shares 10% (6%) 4% Solutions Manual 15-23 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 Participating (5. .242 $107.000 Current year Additional 4%** to common $37.$337.000 ÷ 25.500 37.000 (b) (c) $445.500 $407.500 $445.000 = 5.535 88.000 *** **** Dividend rate per share for preferred shares is 6% calculated: [$1. distribution.000 * 25.242 Total $ 37.9655% $3.50 = $37.50 ÷ ($625. Young.500 = 2.000 120.965 $217.000.000 190.500 $180.Kieso.500 255.000 X 6%**** = $180.500 $180.000 . Ltd. or transmission of this page is strictly prohibited. Warfield.758 $337.965 $56.000 X $1.500 / $625. Wiecek.625.2414% $3. Weygandt.500 ** Pro rata share to common: $3.500 217. 000 Excess return 3. Tenth Canadian Edition EXERCISE 15-7 (20-30 minutes) (a) Dividends in arrears (1) Current year dividend (2) Participating dividend (3) Total Preferred Common Total $250.000 Participating dividend to preferred Shareholders $25.800.000 $240.000 $180. Warfield.000 $640. distribution.000 (1) Dividends in arrears: 25.000 25.33% Apply excess return to preferred shareholders’ capital X $750. Weygandt.000 60.000 X $5 X 2 = $250.000 Solutions Manual 15-24 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Excess dividend $1 Number of common shares outstanding X 60. Young.Kieso. .000 Common share capital $1. Ltd.000 305.000 125. Unauthorized copying.000 $250. $1 per share is in excess of the $3 dividend per share participation threshold. McConomy Intermediate Accounting.000 60.000 X $3 $ 180.000 (3) Participating dividend: Since the common shareholders will receive a $4 per share dividend.000 85.000 $400.000 Excess total dividend $60.000 X $5 = Common: Number of shares issued $125. Wiecek. or transmission of this page is strictly prohibited.000 (2) Current year dividend: Preferred: 25. . 1............ Wiecek. Unauthorized copying........... Young......000 (60....................500 Cash (10. 315....500 = $315. 945... Weygandt........ distribution....500 X $105) .... 787..000 Contributed Surplus ...................................800................. Warfield...... McConomy Intermediate Accounting...102....................... Ltd........000 / 60.................................Kieso... ............. or transmission of this page is strictly prohibited....................... 945..000 Common Stock Dividends Distributable .........000 X 10...000 X 15% X $105) (c) Common Shares ........................500 ($1......000) Solutions Manual 15-25 Chapter 15 Copyright © 2013 John Wiley & Sons Canada... Tenth Canadian Edition EXERCISE 15-7 (Continued) (b) Retained Earnings ........... ............ 5.............000 January 28............................... 5.................................................... 2015 FV-NI Investments ......728. McConomy Intermediate Accounting..728..........000 Solutions Manual 15-26 Chapter 15 Copyright © 2013 John Wiley & Sons Canada....000 Property Dividends Payable ........................................ 1.............................728. Wiecek.. 1............ Young... memorandum note to indicate that shares outstanding are now 2..... 165.............400.................000 shares X 6% X $48 = $1... Tenth Canadian Edition EXERCISE 15-8 (10-15 minutes) (a) Retained Earnings ... 165...... 2015 Property Dividends Payable ..................................... Warfield....000 X 4)............. or transmission of this page is strictly prohibited.......000 FV-NI Investments .......................000 Unrealized Gain or Loss .......... Unauthorized copying..000 Common Stock Dividends Distributable ...... 1....728............ .. (c) January 8....000 (b) No entry....................................Kieso...........................000 (600.......000 Common Shares ....... 165..........728..................000 (600...000) Common Stock Dividends Distributable ...................................... Ltd........000 Retained Earnings . 1..... distribution. Weygandt.... 165. .........000 (b) Large stock dividends and splits serve the same function with regard to the securities markets.... Unauthorized copying........................... 143.......... Tenth Canadian Edition EXERCISE 15-9 (10-15 minutes) (a) 1.000.. Wiecek.000 (1..... Retained Earnings . .. Solutions Manual 15-27 Chapter 15 Copyright © 2013 John Wiley & Sons Canada................... Both techniques allow the Board of Directors to increase the quantity of shares outstanding and channel share prices into the “popular trading range......000. Weygandt.........000 Common Shares ... It is necessary to capitalize the stated value with a stock dividend because the number of shares is increased and the stated value per share remains the same....................... Ltd....” For accounting purposes the 20%-25% rule reasonably views large stock dividends as substantive stock splits. No entry—simply a memorandum indicating the number of shares has increased to 2 million................. distribution.Kieso..........000............ Stock dividends are sometimes referred to as “capitalization of earnings”........ 143...... or transmission of this page is strictly prohibited... McConomy Intermediate Accounting...... 2...000............... Young.......000.............. 143............. 143.....000 Common Stock Dividends Distributable .....000 shares X $143) Common Stock Dividends Distributable . Warfield...... ............000 Common Stock Dividends Distributable ............360....................360..000 X $59) ................ Tenth Canadian Edition EXERCISE 15-10 (10-12 minutes) (a) Retained Earnings .......... 2.....................000 (c) No entry.... 2.................360....000 Common Shares ............. Warfield.... 23.. The number of shares outstanding increases to 800.................... McConomy Intermediate Accounting............................ distribution........................... 23.................... Young. Ltd.......000 Common Stock Dividends Distributable .................. or transmission of this page is strictly prohibited................600.................... 23.....600..... Wiecek............000 Common Stock Dividends Distributable ........ 23........ ...............000........... Weygandt.........000 X 10% X $59) Common Stock Dividends Distributable ..........000 Common Shares ..... 2.....000 (b) Retained Earnings (400.....600............000 (400................................................. Solutions Manual 15-28 Chapter 15 Copyright © 2013 John Wiley & Sons Canada..600... Unauthorized copying..Kieso.360. 2..... .......................000 X 3...000 X $8) ............... distribution...........700 + 46... Cash (1........................700 Cash (3...............000 2.............000 / 25......................................................................... Common Shares ...............800) 3..... Tenth Canadian Edition EXERCISE 15-11 (30-35 minutes) (a) 1.............130) X $2] ..000 Preferred Shares ...... .....................700) X 10% = 2... 114.......................... 70..860 2... 24..... Young........ 95... Common Stock Dividends Distributable.......700 = $14..3.... 75..................................................700 X $35) ... McConomy Intermediate Accounting................................... 95............................Kieso..... 105. Dividends Payable (Preferred .000 X $8)..................... 105.000 4......... 129........... 91................... 95........ Solutions Manual 15-29 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.........860 Dividends Payable (Preferred ..... 95..130 X $45] 5.......000 Cash ...........2..000 Dividends Payable (Common .............................850 6..................850 Common Shares.............000 Dividends Payable [(Common ............000 X $105) . Unauthorized copying............. 14..............................................25.............000 – 3.... Warfield........ 16... Retained Earnings ......................000 X $3) ........... or transmission of this page is strictly prohibited...850 [(25.............25...800 Contributed Surplus ............................................................ Weygandt.................. Ltd.......................... Retained Earnings ....000 – 3......... Wiecek..............500 ($100.............850 Common Stock Dividends Distributable .... McConomy Intermediate Accounting. Wiecek.000 = $533.050 Contributed surplus: $155. .000 + $105. Shareholders’ Equity—December 31. distribution. 23.139. 100.000 Common shares: $100. Warfield.000) = $80.000 Accumulated other comprehensive income $1.000 = $305. (10.350 Retained earnings 533.000 + ($455. Ltd.850 – $70.000 shares issued ) $ 305.050 Contributed surplus 40.800 + $95.000 – $95. 2014 Share capital Preferred shares. Weygandt. Tenth Canadian Edition EXERCISE 15-11 (Continued) (b) Falkon Corp.860 + $450.700 = $40.000 – $114. Unauthorized copying.300 Retained earnings: $250. or transmission of this page is strictly prohibited.000 – $14. 3.000 Common shares.850 = $181.290 AOCI: $75.000 Solutions Manual 15-30 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.300 Total paid-in capital 526. Young.640 Total shareholders’ equity Calculations: Preferred shares: $200.290 80.000 – $450. $8.430 shares issued 181.Kieso.000 shares authorized.050 Total share capital 486.000 shares authorized. 500) 105.800) 2.000 Acc.860) $533.850 Contrib.700) 105. Young.000) (24. Total $780.850) $40.130 95.000 23.430 $181.000 $75. or transmission of this page is strictly prohibited. Statement of Changes in Shareholders' Equity For the year ended December 31. Other Retained Compr. December 31 Preferred shares Number of sh.000 5. Paid-in 2.000 $1.139.000 $305. January 1 Net income Other comprehensive income Comprehensive income Repurchase of common shares Issuance of preferred shares Issuance of common shares through stock dividend Cash dividend: – preferred – common Balance.000 $100.300 Solutions Manual 15-31 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 (3.000 5. Ltd.000 450.000 $200.860) (46.000 (129. 2014 Balance.640 .000 Common Shares Number of sh.000 455. Paid-in 25.000) (46.000 450.000 1.000 (114. distribution. Earnings Income $250.Kieso.000 3.000 - (24. Surplus $155. Warfield.050 (95.700) (14. Wiecek. Tenth Canadian Edition EXERCISE 15-11 (Continued) (c) Falkon Corp. Unauthorized copying. Weygandt. McConomy Intermediate Accounting.290 $80. Ltd.10% Since Falkon’s rate of return on shareholders’ equity exceeds the rate of return on assets. distribution. also known as “employing leverage” to the advantage of the company. Wiecek.Kieso.320 1 = 60.640 – $305. Young.000) / 2 = 22.23% 1 Average common shareholders’ equity = [($780.000 + $1. A common shareholder would generally favour a company that is trading on the equity. .000 – $24.$200. Tenth Canadian Edition EXERCISE 15-11 (Continued) (d) Rate of return on common shareholders’ equity for 2014: Net income – preferred dividends Average common shareholders’ equity $450.000 .320 Rate of return on total assets for 2014: Net income – preferred dividends Average total assets $450. Warfield. Solutions Manual 15-32 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 $707.000 – $24. because the company is using borrowed money at fixed interest rates (or issuing preferred shares with constant dividend rates) and earning a higher rate of return on the money used. or transmission of this page is strictly prohibited. McConomy Intermediate Accounting. Unauthorized copying. Weygandt.000 ($1.916.000) + ($1.139.000)] 2 = $707. the company is trading on the equity.940. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 15-12 (15-20 minutes) (a) Jan. 15 Cash (10,000 X $6) ........................................................... 60,000 Common Shares .................................................... 60,000 Feb. 12 Cash (2,000 X $60) ........................................................... 120,000 Preferred Shares .................................................... 120,000 Jun. 30 Retained Earnings ........................................................... 52,500 Cash (35,000 X $1.50) ............................................. 52,500 Sept. 2 Land ................................................................................. 25,000 Common Shares .................................................... 25,000 Oct. 31 Retained Earnings ........................................................... 4,000 Cash (2,000 X $2) ................................................... 4,000 Nov. 15 Preferred Shares (500 X $60) .......................................... 30,000 Retained Earnings ........................................................... 1,000 Cash (500 X $62) .................................................... 31,000 The following entry might also be made: Dec. 31 Income Summary Retained Earnings 532,000 532,000 Solutions Manual 15-33 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 15-12 (Continued) (b) Miss M’s Dance Studios Ltd. Statement of Changes in Shareholders’ Equity Year ending December 31, 2014 Number Number of of Common Common Preferred Preferred shares Shares Shares Shares 25,000 $100,000 – – 10,000 60,000 2,000 $120,000 5,000 25,000 Balance, January 1, 2014 Shares issued for cash Shares issued for land Dividends, common shares Dividends, preferred shares Shares purchased and retired Net Income Balance, December 31, 2014 _ 40,000 _ _ $185,000 (500) _ 1,500 (30,000) _ $90,000 Solutions Manual 15-34 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Retained Earnings $365,000 (52,500) (4,000) (1,000) 532,000 $839,500 Total Shareholders’ Equity $465,000 $180,000 25,000 (52,500) (4,000) (31,000) 532,000 $1,114,500 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 15-13 (20-25 minutes) (a) Transaction entries for 2014: Jan. Mar. 2 5 April 1 18 June 5 July 1 Sept. 5 Oct. Dec. 1 5 Cash (100,000 X $25) ..................... Preferred Shares .................... Retained Earnings (100,000 X $5 X 3/12) .................. Dividends Payable ................. 2,500,000 2,500,000 125,000 125,000 Dividends Payable......................... Cash ........................................ 125,000 Cash (130,000 X $11) ..................... Common Shares ..................... 1,430,000 Retained Earnings (100,000 X $5 X 3/12) .................. Dividends Payable ................. Dividends Payable......................... Cash ........................................ Retained Earnings (100,000 X $5 X 3/12) .................. Dividends Payable ................. Dividends Payable......................... Cash ........................................ Retained Earnings (100,000 X $5 X 3/12) .................. Dividends Payable ................. 125,000 1,430,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 Note: The December 5, 2014 dividend will be paid on January 1, 2015 and will reduce both Cash and the Dividends Payable liability by $125,000 on that date. The following entry might also be made: Dec. 31 Income Summary Retained Earnings 374,000 374,000 Solutions Manual 15-35 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 15-13 (Continued) (b) Preferred Shares Jan. 1 – Jan. 2 2,500,000 Dec. 31 2,500,000 Retained Earnings Jan. 1 Mar. 5 Jun. 5 Sep. 5 Dec. 5 1,323,000 125,000 125,000 125,000 125,000 Common Shares Jan. 1 5,600,000 Apr. 18 1,430,000 Dec. 31 7,030,000 Accumulated Other Comprehensive Income Jan. 1 142,000 Dec. 31 142,000 Dec. 31 374,000 Dec. 31 1,197,000 Solutions Manual 15-36 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition EXERCISE 15-13 (Continued) (c) COPELAND LTD. Statement of Shareholders' Equity Year Ended December 31, 2014 Preferred Shares Number of Share Shares Capital Balance Jan, 1, 2014 Issued preferred shares Issued common shares Declared dividends Net earnings Balance Dec. 31, 2014 Common Shares Number of Shares Share Capital Retained Earnings 800,000 $5,600,000 $1,323,000 100,000 $2,500,000 130,000 100,000 $2,500,000 1,430,000 (500,000) 374,000 930,000 $7,030,000 $1,197,000 Solutions Manual 15-37 Chapter 15 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited. Accum. Other Comprehensive Income $142,000 Total $7,065,000 2,500,000 1,430,000 (500,000) 374,000 $142,000 $10,869,000 ...000 1. Retained earnings . Proceeds from issue of common shares ..000 (e) COPELAND LTD......... unlimited number authorized... Warfield..... no par value.............000) $3..... 2015 and will appear on the statement of cash flows in that year (the year paid).......... Cash provided by financing activities ... 2014 Financing activities Proceeds from issue of preferred shares . no par value.....500... Common shares..000 142....197.... McConomy Intermediate Accounting... Accumulated other comprehensive income .... Total shareholders’ equity .. Young...... Statement of Financial Position (Partial) December 31..... 2014 Shareholders’ equity Share capital $5 Preferred shares. unlimited number authorized..............000 1....Kieso. . $2.......530... Tenth Canadian Edition EXERCISE 15-13 (Continued) (d) COPELAND LTD..000 $10............000 7...... Ltd.... Solutions Manual 15-38 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.........869...............000 (375... Unauthorized copying.000 * Dividends declared on December 5th will be paid on January 1. Weygandt.555.... noncumulative. 100.....500. distribution...............430...... or transmission of this page is strictly prohibited...... Cash Flow Statement (Partial) Year Ended December 31..... 930. Payment of preferred dividends* .000 shares issued Total share capital .000 9.000 shares issued .. Wiecek................. $ 2....030. Warfield.500 shares Total common shares issued and to be issued Total share capital Contributed surplus Total paid-in capital Retained earnings Total paid-in capital and retained earnings Less: Share subscriptions receivable Total shareholders’ equity $1.305.500 3.500 817.000 150.000*** 5. 6% cumulative and nonparticipating.500 4. issued and outstanding 10.000 From sale of common shares: $3.000) $817. distribution.000 shares.000 $3.000 shares Common shares subscribed. authorized 300. Weygandt.500 shares 52.123.600** $5.305.000 shares X $11 par value) = 300.000.000 X (10.000.000 shares Common shares. McConomy Intermediate Accounting.190. 10.500 X (1 – 30%) Solutions Manual 15-39 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000) (10. Ltd.000 / 300. authorized 1.000 115.000 – (300.600. issued and outstanding 290. $11 par value.000 shares.400 *Contributed surplus balance is composed of the following: From issue of preferred shares: $1. 2014 Shareholders’ equity: Share capital: Preferred shares. Tenth Canadian Edition *EXERCISE 15-14 (20-30 minutes) (a) RADFORD CORPORATION Partial Statement of Financial Position As of December 31.000 117. Young.155.000 From sale of common share subscription: ($16 per share – $11 par value) X 10.Kieso. . Wiecek.500 **$16 X 10.273. Unauthorized copying.000 – (10. $100 par value.500 From repurchase and retirement of common shares: $300.475.000 shares X $100 par value) = $475. or transmission of this page is strictly prohibited.500* 5. 123.000 Less: repurchase of common shares: Purchase price $150.648.000 shares authorized.000 shares authorized.000 117.600 $5. 300.000 (b) RADFORD CORPORATION Partial Statement of Financial Position As of December 31.000 ) Less: pro-rata portion of contributed surplus ( 10.000 ) Adjusted balance of retained earnings $150.000* 5. 6% cumulative and nonparticipating. Young.000 3.000 168.000 Less stated value of common shares ($10.000 X $11) ( 110.000 Less repurchase and retirement of common shares: Purchase price $150. Tenth Canadian Edition *EXERCISE 15-14 (Continued) *** Retained earnings balance $180. 290.155.273.400 Retained earnings balance $180.000 X $12) ( 120.000 shares issued Common shares. .000.000 ) ( 30. Unauthorized copying. Wiecek. Ltd.000 ) ( 30. 1. distribution. McConomy Intermediate Accounting.475.000 Solutions Manual 15-40 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 150.480. 10. Warfield. 10.000 5.000 $3.500 shares Total common shares issued and to be issued Total share capital Retained earnings Total paid-in capital and retained earnings Less: Share subscriptions receivable Total shareholders’ equity * $1.000 Less: par value of common shares ($10. Weygandt. 2010 Shareholders’ equity: Share capital: Preferred shares. or transmission of this page is strictly prohibited.Kieso.000 shares issued Common shares subscribed.000 ) Adjusted balance of retained earnings $150. Wiecek. McConomy Intermediate Accounting. Young. or transmission of this page is strictly prohibited. distribution. Both presentations are acceptable under IFRS and ASPE although the contra-equity presentation reflects “paid-in” capital more accurately and is required in some jurisdictions. The contra-equity presentation would produce a lower book value and a higher rate of return on shareholders’ equity by reducing the shareholders’ equity in the formula. . Solutions Manual 15-41 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Ltd. Unauthorized copying. Weygandt.Kieso. Tenth Canadian Edition EXERCISE 15-14 (Continued) (c) The Share Subscriptions Receivable account can be shown as a contra-equity account in shareholders’ equity or as a receivable in the asset section of the statement of financial position. Warfield. Tenth Canadian Edition EXERCISE 15-15 (15-20 minutes) (a) Shareholders’ Item Assets Liabilities Equity Share Capital 1. Warfield. Surplus Retained Earnings NE NE NE NE NE NE NE NE NE NE NE I I D NE D NE D NE D I D NE NE Acc. NE = no effect. McConomy Intermediate Accounting. Wiecek. Other Comprehensive Income NE NE NE NE NE NE I NE D NE NE NE Solutions Manual 15-42 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. NE I D NE 3. Ltd. NE I D NE 7. NE I D NE 9. D NE D NE 5. D D NE NE 10. NE NE NE I 11. Young. I NE I NE 8. D NE D D I = increase. D D NE NE 6. distribution. or transmission of this page is strictly prohibited. I NE I NE 2. Net Income I NE NE D NE D NE NE I NE NE NE . D = decrease Cont. NE NE NE NE 12. Weygandt. NE NE NE NE 4. Unauthorized copying.Kieso. Warfield. Wiecek. or transmission of this page is strictly prohibited. McConomy Intermediate Accounting. Ltd.Kieso. the investment accounted for using FV-OCI. Tenth Canadian Edition EXERCISE 15-15 (Continued) (b) If the company was a private entity following ASPE. Under ASPE. the investment would have to be accounted for using fair value through net income (since ASPE does not have an FV-OCI option and the shares trade in an active market). Weygandt. Unauthorized copying. then the only items that would be handled differently are item #7 and #9. . Young. distribution. Solutions Manual 15-43 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. 000 shares. Tenth Canadian Edition *EXERCISE 15-16 (20-25 minutes) Brubacher Corporation Shareholders’ Equity December 31. authorized 600. distribution.000 Common shares. issued 200.000 Less: Treasury shares.000 Total paid-in capital and retained earnings 2.000 shares $ 500. . $50 preference in liquidation.000 Accumulated other comprehensive income 100. Young. $5 cumulative.000 shares. authorized 60. Unauthorized copying.461.000 shares 200.000 $2. Wiecek.Kieso. McConomy Intermediate Accounting.000 Contributed surplus—common 1. 2014 Share Capital: Preferred shares. and outstanding 190. Weygandt. issued and outstanding 10.000 Total shareholders’ equity Solutions Manual 15-44 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 shares. or transmission of this page is strictly prohibited.460. Warfield.160.000 Total share capital 700.291.000 Total paid-in capital 2.000 Retained earnings 201. 10.000 common shares 170. Ltd. 000 = 20% (b) Kao Corp.000 – $36. McConomy Intermediate Accounting.33% Solutions Manual 15-45 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. $756. Warfield.200. is the more profitable in terms of return on shareholders’ equity.000 $4.000 $4. or transmission of this page is strictly prohibited.600.700. Wiecek.200. Tenth Canadian Edition EXERCISE 15-17 (20-25 minutes) (a) Bennington Corp. Weygandt.000 $4.000 = $840. the rates of return on total assets are as shown below: $840. If the rate of return on total assets uses net income before interest but after tax in the numerator. Unauthorized copying. distribution.000 $2.Kieso. This may be shown as follows: Bennington Corp.000 Bennington Corp.000 + $120.000 = 18% It should be noted that these returns are based on net income related to total assets. $840. Young. where the ending amount of total assets is considered representative. is the more profitable in terms of return on total assets.200.000 = 28% Bennington Corp. = 20% $756.200. $756.000 = 23. .000 = 20% Kao Corp. This may be shown as follows: Kao Corp.000 $4.200. Kao Corp. Ltd. $840.000 $4.000 $3. This interest cost must be reduced by the tax savings (30%) related to the interest.000 Rate of Return Accruing to on Funds at Cost of Common 20%* Funds Shares $ 60.000 700.000. The interest cost (net of tax) of this income was $84.000 $840. or transmission of this page is strictly prohibited.000 ** 156. Solutions Manual 15-46 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 $ 0 $ 60.000 240. which indicates a net return to the common equity of $756. Kao Corp. Warfield.000 $4. 20% **The cost of funds is the interest of $120.000.000 0 140. Unauthorized copying.000 1.000 X 10%).200. Ltd.000 140.000.200. distribution.200.000 *Determined in part (a). Weygandt. the following schedule might be provided to the student.000 84.Kieso.000.000 0 400.000 400. Tenth Canadian Edition EXERCISE 15-17 (Continued) Note to instructor: To explain why the difference in rate of return on assets and rate of return on shareholders’ equity occurs.000 (1. The schedule indicates that the income earned on the total assets (before interest cost) was $840. Fund Supplies Current liabilities Long-term debt Common shares Retained earnings Funds Supplied $ 300.000 $84. Wiecek.000 2. .000 $756. Young. McConomy Intermediate Accounting. 000. Tenth Canadian Edition EXERCISE 15-17 (Continued) (c) The Kao Corp.00 100.000). Wiecek.000 145. from the point of view of income it is advantageous for the shareholders of Kao Corp. had net income per share of $5. Kao has less shareholder contributed capital outstanding. The excess was financed by borrowed capital and represents additional income for the shareholders and has resulted in the higher net income per share.000 + $700.79 = 13 times earnings. Warfield. $2. . McConomy Intermediate Accounting. Due to the debt financing. earned a net income per share of $7.000 100.50 $5.83 145.56 $63.000 = $24. The assets obtained from incurrence of this debt are earning a higher return than their cost to Kao Corp. Weygandt. (e) Price earnings ratio.000) while the Bennington Corp. (d) Yes. Bennington Corp.000 Solutions Manual 15-47 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 Bennington Corp. Kao Corp.000 = $27. Ltd. has borrowed a substantial portion of its capital at a cost of 10% and has used these assets to earn a return in excess of 10%. yet may lead to increased risk in the case of an economic downturn. Book value per share. Unauthorized copying. to have long-term debt outstanding.Kieso.000 + $700. (f) $101 $7.56 ($756.900. distribution. which is evidence of leverage. $2. or transmission of this page is strictly prohibited. Young.79 ($840. The Kao Corp. Kao Corp. = 11 times earnings. ........ Ltd..... 190....... 190......................................... McConomy Intermediate Accounting........................................600 Notes Payable ............. Wiecek........................... or transmission of this page is strictly prohibited.. 135............ ...... 395........ distribution..................... Tenth Canadian Edition *EXERCISE 15-18 (10-15 minutes) Common Shares .....600 (To record write-up of plant assets to fair value and record the negotiated change in control) Solutions Manual 15-48 Chapter 15 Copyright © 2013 John Wiley & Sons Canada..........000 Deficit .............. Young........... Unauthorized copying....................................... Weygandt............................................Kieso...000 Common Shares ...... Warfield....... 260...000 (To record the elimination of the deficit against share capital) Buildings ........... ........... 1. ...........000 Contributed Surplus..000 = $1.000 – $80...000)] 120.................070........... Ltd.....000) Solutions Manual 15-49 Chapter 15 Copyright © 2013 John Wiley & Sons Canada....................000 + $620..... Buildings.........................................000 Retained Earnings ....Kieso. 220. distribution.............................. or transmission of this page is strictly prohibited..000 ($450................................................................ 450....... Young.000 – ($1.................... McConomy Intermediate Accounting......................000 330............... Wiecek..................................000 Inventories .. Warfield....... Unauthorized copying.700. Weygandt.......000 Common Shares ...... Tenth Canadian Edition *EXERCISE 15-19 (15-20 minutes) Retained Earnings ....290........... 850....... [$330...... a repurchase of shares and a lump-sum issuance must be recorded. distribution. Problem 15-4 (Time 20-30 minutes) Purpose—to provide the student with an understanding of various entries relating to share issuances. Young. Ltd. Warfield. Problem 15-3 (Time 20-30 minutes) Purpose—to provide the student with an understanding of the necessary entries to properly account for a corporation’s share transactions. . The student must prepare the shareholders’ equity section of the balance sheet. The student must also discuss the distinction between paid-in capital and retained earnings and how different types of preferred shares would affect the repurchase transaction. McConomy Intermediate Accounting. or transmission of this page is strictly prohibited. lump-sum and subscription issuances. The entries involve a share subscription. The student is required to prepare the journal entries to reflect these transactions. Problem 15-5 (Time 20-30 minutes) Purpose—to provide the student with an understanding of the proper entries to reflect the reacquisition. This problem involves such events as lump-sum sales of shares. In addition. Problem 15-6 (Time 15-25 minutes) Purpose—to provide the student with an opportunity to record five different journal entries. Journal entries for the transactions are also required.Kieso. and issuance of a corporation’s shares. The student is required to prepare the respective journal entries and the shareholders’ equity section of the balance sheet so as to reflect these transactions. and the reacquisition of both preferred and common shares. This problem involves non-monetary. analyzing and classifying different transactions to come up with proper accounts and amounts. The problem involves such concepts as noncash share exchanges. Wiecek. Unauthorized copying. collection of the receivable. Weygandt. Problem 15-2 (Time 45-55 minutes) Purpose—to provide the student a comprehensive problem involving all facets of the shareholders’ equity section. and default on certain of these receivables. Solutions Manual 15-50 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. and a noncash share exchange. Tenth Canadian Edition TIME AND PURPOSE OF PROBLEMS Problem 15-1 (Time 35-40 minutes) Purpose—to provide the student with an understanding of the necessary entries to properly account for a corporation’s share transactions. sale of preferred and common shares. assuming that they occur simultaneously. Warfield. The student is required to allocate the dividends to each type of share under two different assumptions: (1) the preferred share does possess these two aforementioned provisions. Problem 15-10 (Time 20-25 minutes) Purpose—to provide the student with an understanding of the effect which certain preferred share provisions. have on dividend distributions to common and preferred shareholders. lump-sum sale. contributed surplus.Kieso. stock dividends and stock splits. Young. . The calculation of the cash dividend is challenging due to cumulative. Transactions include issuance of par value shares to buy machinery. and a reacquisition of shares. The student is required to analyze their effect on total assets. property. collection of subscribed shares. The student is required to prepare the necessary journal entries for the dividend declaration and payment. or transmission of this page is strictly prohibited. participating preferred shares. Wiecek. Tenth Canadian Edition TIME AND PURPOSE OF PROBLEMS (CONTINUED) Problem 15-7 (Time 25-30 minutes) Purpose—to provide the student with an opportunity to record a nonmonetary share issuance. *Problem 15-8 (Time 25-35 minutes) Purpose—to provide the student with an opportunity to analyze a set of transactions affecting shareholders’ equity and prepare the company’s shareholders’ equity section. common shares. Weygandt. which will be satisfied by the issuance of common shares. Problem 15-11 (Time 20-25 minutes) Purpose—to provide the student with an understanding of the accounting effects related to the cash. a share repurchase and a cash dividend payment. retained earnings. and total shareholders’ equity. such as cumulative and fully participating. Solutions Manual 15-51 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. This problem also involves a dividend arrearage on preferred shares. Unauthorized copying. Problem 15-9 (Time 15-20 minutes) Purpose—to provide the student with an understanding of the proper accounting for the declaration and payment of cash dividends on both preferred and common shares. distribution. Ltd. McConomy Intermediate Accounting. and (2) the preferred share does not. The student is required to prepare both the necessary journal entries to record the equity transactions and prepare the shareholders’ equity section of the balance sheet. such as the declaration of property dividends and stock dividends and the donation of land. Tenth Canadian Edition TIME AND PURPOSE OF PROBLEMS (CONTINUED) Problem 15-12 (Time 30-40 minutes) Purpose—to provide the student with an understanding of the respective entries for a series of transactions involving equity accounts. issuance costs. . Problem 15-13 (Time 30-40 minutes) Purpose—to provide the student with an understanding of the proper accounting for the issuance of shares. Unauthorized copying. distribution. Problem 15-14 (Time 25-30 minutes) Purpose—to provide the student with an opportunity to prepare a statement of changes in shareholders’ equity and the shareholders’ equity section of the balance sheet to reflect the changes from five different transactions involving share issuances. and defaulted subscriptions. Warfield. stock splits. Solutions Manual 15-52 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Problem 15-15 (Time 35-45 minutes) Purpose—to provide the student with an understanding of the proper accounting for the declaration and payment of both a cash and stock dividend. and dividend declarations. The student is required to prepare both the necessary journal entries to record the cash and stock dividends and the shareholders’ equity section of the balance sheet. Wiecek. Throughout the problem the student needs to keep track of the number of shares outstanding. Young. McConomy Intermediate Accounting. reacquisitions. Weygandt. The student is also required to prepare the statement of changes in shareholders’ equity.Kieso. shares sold on a subscription basis. Ltd. The student is required to prepare the proper journal entries to reflect these transactions and to prepare a shareholders’ equity section to reflect the entries during the period. or transmission of this page is strictly prohibited. . Unauthorized copying....... Tenth Canadian Edition SOLUTIONS TO PROBLEMS PROBLEM 15-1 (a) -1(no entry necessary) -2Land ... McConomy Intermediate Accounting.................... 1.......... -6Common Shares ............... 330... ... distribution....................000 10.......000 210.................000 300.........Kieso..........200 shares X $110) ...000 85.............000 shares X $99) ....... or transmission of this page is strictly prohibited........500) -7Cash (2........00 per share X 500 shares = $10.. ($210..............672................................. Weygandt......000 shares) ................ Cash .. 210..... Wiecek........... Cash ....... Retained Earnings .......000 85...... Ltd.. Common Shares..000 = $21.............000 -4Preferred Shares ($110 X 3......500 14................ 1............................. Warfield.........000 30... Contributed Surplus ..000 24..................................000 ÷ 10....672.......000 Preferred Shares .....500 198..........000 -3Cash (15.................... Young.......................... -5Dividends Payable ..........................000 198.... Preferred Shares .................. Cash ..........000 Solutions Manual 15-53 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.................. Young. or transmission of this page is strictly prohibited.540. distribution. issued 9.500) $(14.000 $199. management. dividends can be declared only out of retained earnings.500 Schedule of Capital Amounts Transaction 2 3 4 6 7 Totals Preferred Shares Contr. issued 14.000 $30. Solutions Manual 15-54 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. authorized 150.000 shares.500 1.500 1.672.500 1. Warfield.200 (3.540. Wiecek.000 199. authorized 150.500 shares Total share capital Contributed surplus Total paid-in capital Retained earnings Total shareholders’ equity $1.200 9.500 (c) The distinction between contributed (paid-in) capital and retained earnings is important from both legal and economic points of view.787.739. Economically.000 10. Unauthorized copying.032.000 shares.500 30. Weygandt.018.000) $30.000 $1. shareholders and others look to earnings for the continued existence and growth of the corporation. Surplus Preferred Common Shares Retained Earnings Number of Shares Preferred Common $210.000 1.000 $2.000) 198.200 shares Common shares—no par value.000 (500) 2. .769. whereas paid-in capital represents amounts contributed to the corporation by shareholders over its life.000 (330.000 14. Ltd.018.000 $1. Tenth Canadian Edition PROBLEM 15-1 (Continued) (b) Shareholders’ equity: Share capital Preferred shares—no par value.Kieso. McConomy Intermediate Accounting.000 15.000) (10. Legally.000 $1. distribution. Wiecek.Kieso. several repurchase transactions could potentially take place during the fiscal period. or the share indenture may specify only particular dates. preferred shares that are callable/redeemable can be repurchased by the corporation at specified future dates and specified prices. usually (but not always) at the prevailing market price. at the corporation’s discretion. when preferred shares are neither callable/redeemable or retractable. Solutions Manual 15-55 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. they can be repurchased in the market by the corporation at prevailing marking prices. These prices may or may not be the same as the prevailing market price. Of course. or transmission of this page is strictly prohibited. Young. frequently by a random draw for a partial call. Tenth Canadian Edition PROBLEM 15-1 (Continued) (d) Although a corporation always has the right to repurchase outstanding shares “on the market” at the prevailing market price. Unauthorized copying. Warfield. Since the shareholder can trigger the repurchase. McConomy Intermediate Accounting. Retractable preferred shares are repurchased by the corporation at the option of the shareholder. This feature would affect the timing of the repurchase. Weygandt. . This would affect the amount of cash paid for the shares and the timing of the repurchase. Ltd. Tenth Canadian Edition PROBLEM 15-2 (a) Oregano Inc. McConomy Intermediate Accounting. 50. Weygandt.000 $3. or transmission of this page is strictly prohibited. Unauthorized copying. cumulative and non-participating.340 50.660 6.000 331. Warfield. Balance Sheet (Partial – Shareholders’ Equity section) June 30. Solutions Manual 15-56 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 shares authorized.500.00. 8. $2. is required to appropriate retained earnings in an amount that is equal to the sinking fund deposit of $50. .000 shares authorized.000 4.868. Young.200. Wiecek. 100. 300. 116.660 381.000 shares issued Common shares.000 (368.000 shares Total share capital Retained earnings Appropriated—Note A Unappropriated 2 Total share capital and retained earnings Less: Share subscriptions receivable Total shareholders’ equity Note A: $2.340 1 368.000 that is to be accumulated to retire a term loan.918.Kieso.000) $6.486.000 shares issued Common shares subscribed. Note to instructor: The Retained Earnings appropriation could also be reported through note disclosure only. distribution.286. Ltd.000 Oregano Inc. 2014 Share Capital: Preferred shares.340 6. 00 06/20/14 500 Total 116. The remaining subscriptions for 8.000 46. Young.000 92. distribution. Warfield.000 Deduct: Appropriation for sinking fund $ 50. Retained Earnings is also debited for $12.000 of common shares subscribed.000 = $32. or transmission of this page is strictly prohibited.340 $ 331.000 Add: Net Income 40.000b 3.000 Excess of cost of reacquired shares over assigned value 12.Kieso.000) 32. the difference between the repurchase price of $39 per share less the average stated price of $32.000 01/31/14 5. Wiecek.340.000 Stock dividend.000 / 112.000 shares exchanged for a plot of land are recorded at $220.000 42.000 $3.340 Preferred dividend 50. 2013 $ 690. Ltd.000 $31. .000 21.000 11/30/13 (2. Tenth Canadian Edition PROBLEM 15-2 (Continued) 1 Common share transactions: Date Shares Price 07/01/11 95.000 c 65.340 a.000 – 03/01/12 10.340 286. b.000a 420.660 Solutions Manual 15-57 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. common shares 286.660 3. Unauthorized copying.83 Subtotal 110. Weygandt.000 398.500 52. 2 Retained earnings.677. McConomy Intermediate Accounting.00 07/24/11 5.83 per share.000 220.000 of shares (use the current fair value of the land on July 24 to value the share issuance). since there is no contributed surplus.000 Common shares $2.945.00 10/01/13 2. June 30. The 5.677.611.918. $3.00 Subtotal 112.000 shares resulted in $368. c.83 per share. .................................000 June 20.............................. McConomy Intermediate Accounting.................. 2014 Cash .. Common Shares .................. 50.......................000 78...................... 50...........660 Retained Earnings ....... 50..................... 2013 Common Shares .......000 Solutions Manual 15-58 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.................. Unauthorized copying...........................000 368......................... 12.000 Common Shares ................000 Cash......000 November 30... 92... distribution...........................000 Cash...............000 April 30...............000 January 15.......... Warfield.....................Kieso........................000 Common Stock Dividends Distributable .............. Tenth Canadian Edition PROBLEM 15-2 (Continued) (b) October 1......340 Cash (2............ 2014 Common Stock Dividends Distributable ......... 50.. 65.......... 286..............................000 92.........000 Dividends Payable ................ 336.............000 January 31... Weygandt..... Ltd.... 286.............................................................................. Common Shares Subscribed ...........000 X $39) ............. or transmission of this page is strictly prohibited.............. Young..... 21...... 2014 Investment in Sinking Fund ............ Wiecek................. 2014 Dividends Payable ...............000 December 15.... 50..................... 368... 21......... ................. Share Subscriptions Receivable ................. 2013 Retained Earnings ..... 286...........000 Common Shares ................................. 2013 Cash . The shareholders of Oregano Inc. The total book value of the shareholders’ holdings does not increase to compensate for this tax burden. Solutions Manual 15-59 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. In this case. Warfield. Ltd.Kieso. Tenth Canadian Edition PROBLEM 15-2 (Continued) (c) A stock dividend is currently disadvantageous for common shareholders since they will have to pay taxes on the value of the stock dividend without the receipt of cash to settle the tax liability. . may be willing to accept a stock dividend in the current year if the company is committed to continuing its payment of $0. or transmission of this page is strictly prohibited. McConomy Intermediate Accounting. Wiecek. distribution. Young. the stock dividend would result in higher cash dividends for common shareholders because each shareholder would hold additional shares. Weygandt. Unauthorized copying.30 per share as cash dividends in the future. .......385 $125..........................500 X $125. Tenth Canadian Edition PROBLEM 15-3 -1Machinery ....................................... ... Young........ 342..500 Allocated to common: $128.. Common Shares ......000 = $ 31..............500 Allocated to preferred: Total allocation $96.. the machine cannot be recorded at a cost higher than its fair value...000 $102.......................000 Solutions Manual 15-60 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. 125.......615 $ 32......................385 31......) -2Retained Earnings ... Warfield.............Kieso........................000 shares = Dividend to common: $6 X 17....000 -3Cash ...000 = 93...500 X $13) = Fair value of preferred (1. Fair value of common (2...........000 Dividend to preferred: $6 X 40... Wiecek.....000 $342.........500 Using the relative fair value method (since the fair values of both shares are available): $32...................200 X $18)..000 Preferred Shares ......................000 $128...000 $128.....000 shares = $240... distribution....500 (Although the value of the shares is $75...000 Dividends Payable ........ Unauthorized copying. 342.600 (4....... 74. 74.............500 Common Shares . Weygandt...... or transmission of this page is strictly prohibited.......500 96............... McConomy Intermediate Accounting.........................615 X $125.... Ltd.200 X $80) = Aggregate 93.. ..... Weygandt........ 36.......Kieso........ Wiecek.. Preferred Shares ..000 5..200 X $14) ....... distribution......200 30.200 The company must use the residual value method to allocate the lump-sum issue since only the value of the common shares is known......000 30........ Tenth Canadian Edition PROBLEM 15-3 (Continued) -4Furniture and Fixtures ..... or transmission of this page is strictly prohibited. Unauthorized copying.........800 $ 5...... Common Shares (2... The value of the preferred shares is not directly known and therefore the residual value is assigned........ Young.......... Warfield...... Solutions Manual 15-61 Chapter 15 Copyright © 2013 John Wiley & Sons Canada............. Ltd... McConomy Intermediate Accounting..800 Using the residual value method: Fair value of furniture Less: Fair value of common shares Total value assigned to preferred shares $36... . ... January 10...... Young. ......................000 Common Shares ........... 6...050 August 20....... 450...... 168.......861 Preferred Shares ............. 400..........139 (3.000 Common Shares Subscribed .......000 / $237..... or transmission of this page is strictly prohibited..000 = $168................................. 230..............000 = $61................................000 (40 X 250 shares X $60) October 11.................... 2014 Land ............400 18..........000 + 600) X $4..... 2014 Retained Earnings .... 60..... Wiecek.... Tenth Canadian Edition PROBLEM 15-4 (a) January 1...................... Warfield... 400....... 26.......... 2014 Automobiles .... 61................... 600.......................... 450...........000 X $58) + (600 X $105) = $237......139 December 31..861... Ltd...........00 = $18..... McConomy Intermediate Accounting........000 Dividends Payable * .......................... 2014 Cash .......000 Preferred Shares (4.........................000 X $100) ..............Kieso................ * (4................................................... 2014 Cash ..............050 6...400 7. Dividends Payable . Common Shares (110 X $55) ..... Weygandt.....000 X $230..000 X $230..... Preferred: $63...000 / $237............600 Solutions Manual 15-62 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.....000 April 15..............000 March 10............ 2014 No entry...........000 Common Shares .......... 2014 Cash ........................ 540....................................... distribution.000............000 Share Subscriptions Receivable ............. Common: $174...... Unauthorized copying........ Alternatively. IFRS 2 Share-based Payment indicates that the fair value of the asset acquired should be used to measure its acquisition cost. distribution. The asking price for the used car does not represent the car’s fair value because the asking price for the used car does not necessarily represent the exchange value of the vehicle between two arm’s length parties.Kieso. McConomy Intermediate Accounting. the fair value of the used car may be determinable by direct comparison with a similar used car that was recently sold. or transmission of this page is strictly prohibited. Weygandt. the company uses the fair value of the shares given in exchange since only the fair value of the common shares is known. In this example. Solutions Manual 15-63 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. and it presumes that this value can be determined except in rare cases. Wiecek. If the asset’s fair value cannot be determined reliably. Unauthorized copying. then its fair value and cost are determined by using the fair value of the shares given in exchange. Valuing the used car using the fair value of the shares given in exchange (which are publicly and actively traded) maintains the representational faithfulness and neutrality of the financial statements. . Ltd. Young. Warfield. Tenth Canadian Edition PROBLEM 15-4 (Continued) (b) This transaction is a non-monetary exchange with a sharebased payment. .........760** Retained Earnings ..000 c..... Wiecek. distribution.............. (200) c........500 X $47) ..... Tenth Canadian Edition PROBLEM 15-5 (a) Common Shares ($30 X 430) ...............644 Contributed Surplus . **Contributed Surplus Bal.. 13............. 12.......... 34...Kieso..... 70................. b.000 12...200 Common Shares..............500 Bal.......800 / 13......000 – $34.........340 (b) Common Shares ($30 X 200) . 1.900 6.......000 X $50)..760) Cash (1......................................000 / $30) 9.. Ltd... Weygandt.500 $452. 3......000 a.800 8.800 $1..... 13...500 Common Shares...070 *Average cost = ($452... 131.......... 131.596 ($50........ ...................800 (c) Cash (3. 16................................... 70... (430) b........800 Number of Common Shares Bal...... 3................ Young......500 (e) Common Shares (1........... Common Shares Bal. $8. ($270.....200 (d) Cash (1....644 – $1........................900 Contributed Surplus ......... b................. 131..000 2........... Warfield...............200 d....644*) .............200 d.... 1.... McConomy Intermediate Accounting..000 a.....644 a.....070 shares) = $34.760 Solutions Manual 15-64 Chapter 15 Copyright © 2013 John Wiley & Sons Canada................. 50. Unauthorized copying......000 3. Contributed Surplus ...............440 Cash ($38 X 430)...000 X $34.......... or transmission of this page is strictly prohibited. Cash ($44 X 200)......... $270.... 70. 6......200 X $41) ...440 2..... ....000 Common Shares Subscribed (12..000 Share Subscriptions Receivable ......... Tenth Canadian Edition PROBLEM 15-6 (a) 1..960 Cash (22.... 160..82 per share 5..........000) $207............000 Cash (2.... Common Shares (22.. 106. Cash (10.000) ÷ (100..........000 Preferred Shares* .000 + 10... 638............... Warfield.....................Kieso....... 310.....000 2... Wiecek. or transmission of this page is strictly prohibited................000 X $26) ...000 *($270...000 Retained Earnings ................000 Share Subscriptions Receivable ......................82*) ..................................000 X $10) ......000 X $26) ..................000 Share Subscriptions Receivable .. 260.. The value of the preferred shares is not known...................... Cash (12.000 (93............ Ltd..... Unauthorized copying....... therefore the residual value is assigned... 312.. Solutions Manual 15-65 Chapter 15 Copyright © 2013 John Wiley & Sons Canada....... 221....000 X $16) .....000 X $31) ....040 Contributed Surplus ....000 X $26) ........... Cash......... 160................000 4... McConomy Intermediate Accounting......000 Common Shares Subscribed . 32.....000 The company must use the residual value method to allocate the lump-sum issue since only the value of the common shares is known......000 *Total received Assigned to common shares (3........ 93.. 52...............000 X $10).... .............000 X $31) Assigned to preferred $300. 192...000) = $4..... Weygandt................. 120............. 260..... Common Shares Subscribed (2. Young..000 Common Shares (3.. distribution.............. 20... 207..000 X $29) .................. 300...000 Common Shares (10........000 + $260.000 X $4..000 3.......................... .. 217...... McConomy Intermediate Accounting..000 Retained Earnings .... 638.....000 Contributed Surplus (2.000) .. Warfield.....040 Contributed Surplus ($310.... Young. 260............000 Common Shares Subscribed . because a liquid market for the shares is not available to provide evidence of fair value.........000 + $260...... Common Shares Subscribed (2...000 Contributed Surplus**………………………….....000 (c) Using the market value or fair value of the common shares of a private company introduces measurement uncertainty. Solutions Manual 15-66 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.. Stellar may have determined the fair value of its common shares based on a quoted price of the common shares of a similar size public company operating in the same industry (adjusted to include Stellar’s own data).. Tenth Canadian Edition PROBLEM 15-6 (Continued) (b) 2....000 + 10...000 X $29) ......... Wiecek......000) ÷ (100.000 *($270.. Ltd.....000 X $20.. Common Shares (22.. 3.960 Cash (22.... 4.... No change.. Unauthorized copying.000 X $26) ...000 = $4. distribution...82 per share ** Because this part of the Contributed Surplus came from a different type of transaction.000 X $10) ...... 106. 20..000 Share Subscriptions Receivable ....000 X $4.......82*) ... ... or transmission of this page is strictly prohibited..... ASPE requires that it be reduced on a pro rata basis: 22......000 Common Shares (10.....000/110. Weygandt. or based on a calculation of the fair value of the company’s net tangible assets. based on a discounted cash flow analysis of the company’s expected future cash flows (using as many objectively determined market inputs as possible).000 X $26) . 32............ 260..000) = $4.......... 310...Kieso.... 52....000 4.............. ...... -3Retained Earnings ( Preferred Dividends) ..000 – $38... Ltd.......000 X $15) ..000) = $12......000 Retained Earnings** . Tenth Canadian Edition PROBLEM 15-7 (a) -1Equipment.........667 Preferred – arrears $8 X 1. 100................000 2 Pro-rata ($80..000 + $100....000 X $10) ....000 8................ 100........667 Retained Earnings ( Common Dividends) .000) / (40..... Young................000 *($500..... Wiecek...... McConomy Intermediate Accounting.. 104.00*) ... 120....... Warfield......000 Common – 8%3 X $480......................... distribution........... Weygandt.... Unauthorized copying.400) Total Preferred 8.000 Preferred – current $8 X 1.000 Cash.000 + 10... or transmission of this page is strictly prohibited....000 8... 80....... .......667 24............ 150. 24..............00 per share ** The contributed surplus balance in the December 2013 shareholders’ equity arose from preferred share repurchases and is not available for common share repurchases...000 Cash (10.....000 -2Common Shares (10...600 4 $80.................... 30..........000 1 Solutions Manual 15-67 Chapter 15 Copyright © 2013 John Wiley & Sons Canada......000 X $12......Kieso....667 Common 5 38..400 41...............000 Common Shares (10. or transmission of this page is strictly prohibited.000 $8. Weygandt.66 If the preferred shares are cumulative and dividends in arrears are paid in the year.000 = $480.6667% Preferred participation. distribution.6667% X $100.000 – 16. Wiecek.000 = $8.000____ 65. 2.000____ 65.600/$480. Tenth Canadian Edition PROBLEM 15-7 (Continued) 1.000 – 10. Warfield. and may require a high enough payout ratio to provide a good yield on the shares.000 – $38. 4. McConomy Intermediate Accounting.Kieso.667 = 1. base %) $80. 3.000 + $100. Ltd. The investor should consider that the company’s payout ratio may appear higher due to payment of dividends in arrears in the year.667 (b) Payout ratio for 2014: Payout ratio = Cash dividends to common__ Net income – Preferred dividends = ____80.600 Common excess % = $41.000 / $100. 5.000 = 8% (Pfd.000 + 10. Young. . A potential investor may be interested in earning dividend income through ownership of the company’s common shares.98 Payout ratio for 2014 if the preferred share dividend was paid in 2013: Payout ratio = Cash dividends to common__ Net income – Preferred dividends = ____80. Unauthorized copying.000 – $120. the company’s payout ratio may appear higher than it would have been if there were no dividends in arrears paid in the year. therefore = 8.000 = 8.000 – 24.400 = $41.000 $500.667 = 1.000) = $80. $2 per share X (40. and not Solutions Manual 15-68 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Warfield. Tenth Canadian Edition necessarily due to excess distribution of profit to common shareholders. Weygandt. or transmission of this page is strictly prohibited. distribution.Kieso. Unauthorized copying. Wiecek. Ltd. Solutions Manual 15-69 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. . Young. McConomy Intermediate Accounting. 039 6.000 2.500 Common Shares Bal. .000 2. Wiecek.239 1. 1. or transmission of this page is strictly prohibited. 20.000 shares authorized.000$942. 200. 200. $100 par value.000 $ 610.757. Preferred Shares Bal. Ltd.200 Contributed Surplus – Com. 90.000 953.539 = $967. 500 3. Tenth Canadian Edition PROBLEM 15-8 LAURENTIAN CORPORATION Shareholders’ Equity December 31.000 3.000 2.100 issued Common shares. 12. Weygandt. $400. 4.100 issued Contributed surplus* Total paid-in capital Retained earnings Total shareholders’ equity $ 610.023. Bal.000 $ 24. $20.500 + $942. McConomy Intermediate Accounting. Warfield.780. 10. 10. Young.000 1. distribution. 6. $160.000 $ 180.461 13.000 shares authorized. Unauthorized copying.539 Solutions Manual 15-70 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. $2 par value.000 2.000 180.461 $2. Bal. $940. 8%.000 5. 200 2.000 6. 2. 2014 Preferred shares.700 * $24.200 967.000 1. 10.Kieso.000 Contributed Surplus – Pref.039 1. 000 $0 1.000 $ 1.000/91.000 Cont. surplus – preferred = ($102 – $100 par value) X 2.000 5.000 Cont.000 1.461 per share For 1. Unauthorized copying. 100 3. (1. surplus – common = ($14 – $2 par value) X 1.000 shares = $200.000 shares = 1.000 shares = $4.000 – $10.000 6. Retained Earnings Bal.000 $0 6.100 6.000 2. surplus – common on a pro rata basis: $953.000 2.461 Debit to Retained Earnings: ($15 X 1. Number of Common shares Bal. distribution. 2.461 = $2. surplus – preferred = ($24. Common shares = $2 par value X 1.000 2. 1. or transmission of this page is strictly prohibited. Ltd.000 Preferred shares = $100 par value X 100 shares = $10. 80. 246. 20.000 shares = $2.000 X $10. $40.000 shares) – $2. McConomy Intermediate Accounting. Common shares = $2 par value X 1.100 shares Number of Preferred shares Bal.000 Cont. . $780. surplus – common = ($12 – $2 par value) X 100 = $1. 100 2.000) = $500 3.461 Share Subscriptions Receivable Bal. 10. Common shares = $2 par value X 100 shares = $200 Cont.000) 90.100 shares Solutions Manual 15-71 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. $20.023. Warfield. Preferred shares = $100 par value X 2. 40. Tenth Canadian Edition PROBLEM 15-8 (Continued) Common Shares – Subsc. Wiecek.461 = $10.000 5. Bal.000 Cont.539.000 91. 4.000 – $10.Kieso.000 shares = $2. Weygandt.000 shares = $12.000 – $12.500 – $2.000 6.539 7. Young.100 shares = $10.000 4. . Young.................. 31...... 50..................70 per share $211................750 Solutions Manual 15-72 Chapter 15 Copyright © 2013 John Wiley & Sons Canada........ outstanding common shares include— As of Dec......000* 211........000 shares 2...............000 Cash ................................... Unauthorized copying.........000 10 = 2........ Ltd......750 Cash ............................... 2014 Preferred distribution—1 common for every 10 preferred shares Common dividend Amount of common cash dividend 300.............................. Tenth Canadian Edition PROBLEM 15-9 (a) For Preferred in arrears: Retained Earnings ........70 per share Common: Retained Earnings .. Weygandt.............. McConomy Intermediate Accounting... ........000 For $2 Preferred current: Retained Earnings .. 50.. Wiecek.....000* * 25..Kieso......... 50.............................................. or transmission of this page is strictly prohibited...........000 shares) For $0...........000 Common Shares...500 shares X 0.500 shares 302.500 common shares issued as dividend 2. *($2 X 25........500 X $20 = $50. 211....... Warfield. distribution..............750* *Since all preferred dividends must be paid before the common dividend... 50............................ McConomy Intermediate Accounting. Tenth Canadian Edition PROBLEM 15-9 (Continued) (b) *Preferred in arrears ($2 X 25. or would be after the dividend.000 **Beginning Retained Earnings balance Net income Available to pay dividends $327. Warfield.000. dividends may not be declared or paid if there are reasonable grounds for believing that (1) the corporation is. is also sufficient to cover the dividends. various tests of corporate solvency have been used over the years.000 shares) Current preferred ($2 X 25. Young. or (2) the realizable value of the corporation’s assets would.000).000 210. after adding the 2014 net income (estimated at $56. There is no evidence in this case that these considerations would be violated.000 shares) Common dividend ($0. Wiecek.000 $383. which is adequately covered by the cash balance.000 Total dividends would be $310. Ltd. unable to pay its liabilities as they become due. Solutions Manual 15-73 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 $310.Kieso. The retained earnings balance. Unauthorized copying. be less than the total of its liabilities and stated or legal capital for all classes of shares.70 X 300. as a result of the dividend.000 50. . distribution. Under the Canada Business Corporations Act (CBCA). To determine the legality of dividends.000) Total cash dividend $ 50. or transmission of this page is strictly prohibited.000 56. Weygandt. 40 X 5. McConomy Intermediate Accounting.000) $1.67 = $60.000 – $12. Warfield.39g $3. Wiecek.40e $ 2.60 -0d $ 2.000 $2.000 $2.000 *($10.60 $24.000 b c d $2. noncumulative and nonparticipating Year 2011 2012 2013 2014 a Paid-out Preferred $8.000 = $2 X 5.67b $3. Tenth Canadian Edition PROBLEM 15-10 Assumptions (a) Preferred.000 $3.000 – $10.57 f $1.57 f $ 5. Young.47 = Common -0$ .000* 30.40 (for 2011) $24.000 – $10.47a $1.00 $. cumulative and fully participating Preferred Common $ 1.000) Solutions Manual 15-74 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Ltd.000 30.40 $ . Unauthorized copying.000 $2. distribution.87c (b) Preferred. or transmission of this page is strictly prohibited.000 = $2.000 $1.29g $24.00 $126.000 **($12.40 = $2 + $0.000** 30.000 – $10.000 30.40 = e $. Weygandt.87 = $126. .Kieso.00 $60. McConomy Intermediate Accounting. . Unauthorized copying. Weygandt. Ltd.67%= g Total Total amount to be Distributed $126. Wiecek.333 ) $150.000) (36.000 Preferred dividend ($2 X 5.333 ) $150.019* X $550.000) (10. Tenth Canadian Edition PROBLEM 15-10 (Continued) f Total Total amount to be distributed $60.019* X $150.35 $2.67% X $550.000 Preferred dividend ($2 X 5. distribution.000 + $550.39 $3.000 Ratable dividend to common (6.57 .113 = Per Share Preferred Common $ 1.22 3.22 0.00 $1.000 ) Per Share Preferred Common $ 2. or transmission of this page is strictly prohibited.000 Ratable dividend to common (6.667) Available for participation 13.000 Common .000) (36.Kieso.000) Available for common and participation 116.000 30.333 Preferred .00 $ 1.000) Available for common and participation 50.000 + $550.000 5. Warfield.000 Totals *(.000 Totals *(.000 $150.000 Common .000 Solutions Manual 15-75 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.333 Preferred .667) Available for participation 79.07 $5.000 30.57 $10.113* X $550.67%** X $550. Young.000 5.39 2.000) (10.113* X $150.57 **(6.019 = $13.29 $79.000 $ 2. 50 per share cash dividend. Guoping declares and issues a 40% stock dividend when the market price of the share is $17 per share. Young. (1) Total assets—decrease $5.000 ($12 X 1. (1) Total assets—no effect (2) Common shares—increase $12.000 *10.000 (5) Total shareholders’ equity—decrease $30. McConomy Intermediate Accounting.Kieso. or transmission of this page is strictly prohibited. Guoping declares and distributes a property dividend (1) Total assets—net decrease $30.000* X $6**) (2) Common shares—no effect (3) Contributed surplus—no effect (4) Retained earnings—decrease $30. Weygandt. distribution.000 X 10%) X $12 (3) Contributed surplus — no effect (4) Retained earnings—decrease $12.000 common shares / 2 = 5. Wiecek. (1) Total assets—no effect (2) Common shares—increase $68. Ltd. Guoping Limited declares and pays a $.000 X 40%) X $17 (3) Contributed surplus —no effect (4) Retained earnings—decrease $68.000 shares of Geneva.000) (5) Total shareholders’ equity—no effect 3. Tenth Canadian Edition PROBLEM 15-11 (a) Transactions: 1. Unauthorized copying.000 (10. Warfield.000 (5) Total shareholders’ equity—no effect 4.000 (10.000 (5) Total shareholders’ equity—decrease $5.000 (2) Common shares—no effect (3) Contributed surplus—no effect (4) Retained earnings—decrease $5.000 2. Solutions Manual 15-76 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 (5. Guoping declares and issues a 10% stock dividend when the market price of the share is $12. . Ltd.000 Geneva shares at FV upon declaration of property dividend. Young. Weygandt. Solutions Manual 15-77 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. . distribution. McConomy Intermediate Accounting. or transmission of this page is strictly prohibited. Warfield. Unauthorized copying.Kieso. Wiecek. Tenth Canadian Edition **Unrealized holding gain of $6 recognized to record 5. ...Kieso... Wiecek........ These cause an increase to contributed capital with no corresponding increase in the assets or decrease in the liabilities of the corporation. Solutions Manual 15-78 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.... 30........ Young.000 FV-NI Investments ..... McConomy Intermediate Accounting... Warfield.... Ltd........ ....000 (To record increase in value of securities to be issued) Retained Earnings ........... Unauthorized copying.... No assets are distributed to the shareholders.... distribution... 60..............000 Guoping declares a 3-for-1 stock split (1) Total assets—no effect (2) Common shares—no effect (3) Contributed surplus—no effect (4) Retained earnings—no effect (5) Total shareholders’ equity—no effect (b) Cash or property dividends involve a transfer of assets to shareholders.. Tenth Canadian Edition PROBLEM 15-11 (Continued) Note: The journal entries made for the above transaction are: FV-NI Investments ......... (To record distribution of property dividend) 5.. Stock dividends cause a portion of retained earnings to be “capitalized” and transferred to paid-in capital. retained earnings are decreased........ Weygandt.. 60....000 Unrealized Gainor Loss .... or transmission of this page is strictly prohibited.......... With both types of dividends......... 30. 80....500 shares @ $24 = $60.............. 80........................350] 8.... Unrealized Gain or Loss .. July 1: Retained Earnings ...........000 shares **([$68......... 23.. Weygandt......... Unauthorized copying.............000 X 5% = 2..000 shares 10 = 5....280 *50.... 60............................. Wiecek......250 80.OCI .000* shares X $16) $80.280 (5....... McConomy Intermediate Accounting.... distribution.................000 Solutions Manual 15-79 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 shares) X 5....400 + $22...250 **($68...... (50..000 shares 42...................Kieso. Warfield... or transmission of this page is strictly prohibited.............000* shares X $16) $80......... 37.......720** $23........ a portion of the Accumulated Other Comprehensive Income will be reclassified to account for the portion of the fair value increase that has been realized through the dividend.....................280 Unrealized Gain or Loss ....OCI ............000 Less: carrying amount 56........................................ Young.........000 Less: cost of 5................ Ltd.000 FV-OCI Investments .. 80.... In addition..... 2.............000 shares Retained Earnings .......000 Common Stock Dividend Distributable .....000 on hand......... 23.....000 60...000 Note: This transaction is a partial distribution and the entry represents revaluation of only the 5...750** $37.........000 Property Dividends Payable ......000 shares distributed of the total of 8.. (5... .000 shares) X 5..400 8.000 shares] April 21: Property Dividends Payable ...................000) 37.......250 Gain on Sale of Investments ...... Tenth Canadian Edition PROBLEM 15-12 (a) 1. April 1: FV-OCI Investments ....... .. distribution...000 1........000 – $60........850 Solutions Manual 15-80 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.....500 Common shares account = $500.........000 Common Shares.. or transmission of this page is strictly prohibited............000 $103.000 29...000 shares authorized... 100.000 + $154....000 788.000 shares authorized...500 = 52.....000) X 3...000 1.080...Kieso.000 + $42.. Young.225.....000 3.... 60..... McConomy Intermediate Accounting.....000 shares – 5.. 2... Weygandt.. Wiecek.50 $55. ...650) $29. Land .............000 145... Warfield....000 $560... $6 dividend.000 (b) Vos Limited Shareholders’ Equity December 31..000 shares remaining Fair value = 3.... 42.000 shares X $18..... 42. Tenth Canadian Edition PROBLEM 15-12 (Continued) July 22: Common Stock Dividend Distributable ....400 / 8.....000 + 2.....000 8.....000 + $60..000 = $145.850 Number of common shares = 50.........000 (25..... Unauthorized copying...850 $2..........000 = $788.500 Cost = ($68. Ltd... 2.042.000 shares Issued Common shares... 60....000 Contributed Surplus – Donated Land .... 2014 Share Capital: Preferred shares......000 = $560..000 – $80... 52.....000 $774...5001 shares issued Total share capital Contributed surplus 2 Total paid-in capital Retained earnings 3 Accumulated other comprehensive income 4 Total shareholders’ equity 1 2 3 4 $520...000 shares distributed = 3.. plant. Unauthorized copying. Tenth Canadian Edition PROBLEM 15-12 (Continued) (c) The changes in fair value of the Waterloo Corp. distribution. McConomy Intermediate Accounting. Most shares (including common and preferred shares) may be considered equity instruments. The legal liability is fixed at the time the dividend is declared and is recorded at this point based on the fair value on that date. although some preferred shares with debt-like features may be classified as financial liabilities.Kieso. since the property being distributed consists of shares of another company (an equity instrument) the liability is not considered to be a financial liability. or transmission of this page is strictly prohibited. shares after dividend declaration are ignored for accounting purposes. In this case. Weygandt. Ltd. Young. . and equipment would also not be considered financial liabilities. Wiecek. Property dividends that involve nonfinancial assets such as property. Solutions Manual 15-81 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Warfield. .............000 X $50 X 90%) ..000 X $50 X 10%) .26......................................................... 200............ 350........000 X $50 X 90%) ..........000 – $104...... 1 No entry.....000 May 10 Common Shares......................... Weygandt.............000 Mar.......000) .....000 Common Shares (2......... 26.000 Cash (30...........17.................. 23 Cash ...... 150..... 28 Receivable from Employee ..............................500....................................000 x $52) ......... Memo only...............470.......................000 Nov.................................... 3.......150..000 X $50 X 10%) ................... 15 Share Subscriptions Receivable (30......000 Sep....... McConomy Intermediate Accounting.... Unauthorized copying......96... 2... 1..000 Common Shares (500 X $52) ........ Ltd............... or transmission of this page is strictly prohibited.......................Kieso.....000 Preferred Shares ($200....000) ............000 Common Shares (50..... Young.....000 Feb.........................000 Solutions Manual 15-82 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 Common Shares Subscribed .... Jan.................................. . distribution...470.............000 Share Subscriptions Receivable (70... 3........ 17..... 104.................................... Tenth Canadian Edition PROBLEM 15-13 (a) Jan............500...................350.000 X $52 X 95%) ........ Wiecek........ 2................................000 Common Shares Subscribed ... Warfield.........000 Cash ($15........ 1. 3 Cash ................ 20 Cash (70......000 + $2........................ ......... 900................... Weygandt.....000 Dividends Payable ... Warfield.. 2.............................000 X $50 X 90%) ........................................000 Share Subscriptions Receivable (2 X 10............................. Wiecek................. 31 Retained Earnings ........ Young......000 X $50) ... 100..000 Share Subscriptions Receivable .. 31 Common Shares Subscribed (2 X 10.... 1.....................................250..... or transmission of this page is strictly prohibited......................000 X $50) ....... distribution............................... McConomy Intermediate Accounting. 2.............................................................................. Unauthorized copying.... 31 Cash* ..................... 200... 2..............000 each) Dec...............000 Common Shares ..................250................... 200.000 * (5 subscriptions X $450..................000 Dec......... 2...000 Solutions Manual 15-83 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. .......... Ltd.......000 Contributed Surplus – Common Shares ...... Tenth Canadian Edition PROBLEM 15-13 (Continued) (a) (Continued) Dec.... 31 Common Shares Subscribed (5 X 10.......500....Kieso..000 Dec.......000............500... ... 1....000 authorized.083...Kieso.....000) 5.... Ltd. 1.. or transmission of this page is strictly prohibited.. equity is a residual interest in the net assets of an entity..... Total share capital .000 5..... Weygandt..... 28 transaction is presented in the shareholders’ equity section of the statement of financial position as an increase in common shares issued and a deduction from share capital (for the amount due from the employee for the issued shares)......... Total paid-in capital...... Wiecek.......000 (c) The Nov.......... Tenth Canadian Edition PROBLEM 15-13 (Continued) (b) Perfect Ponds Incorporated Shareholders’ Equity December 31...........003........... Common shares subscribed ..403.....000 $6. The receivable from the employee represents an amount that may be collected within one year...500...... 50.... however the risk of collection related to this type of receivable is often high....................... Warfield.........000 600...000 5.....000) (26...............303... The common shares issued represent issued equity....000 shares authorized............... distribution.............. Solutions Manual 15-84 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.... and should be shown as an increase in common shares issued..... Less: Share subscriptions receivable .....000 (1..... Common shares..... 102.. $ 96................. ............ $3 cumulative..... and there may not be reasonable assurance that the company will collect the amount in cash... According to the conceptual framework..... ASPE specifically supports reporting the receivable as a reduction of equity......000 100..000 issued.500 issued ...................... Contributed surplus . no par...... Retained earnings ........ McConomy Intermediate Accounting..000 1..000... Total shareholders’ equity ................... Less: Due from employee for issued shares ............................ 2014 Share Capital: Preferred shares............... Young......350. Unauthorized copying............ Unauthorized copying. Weygandt. Tenth Canadian Edition PROBLEM 15-13 (Continued) Note: IFRS is not definitive on this issue but the conceptual framework would also support reporting the receivable as a reduction of equity unless there is substantial evidence that the company is not at risk for declines in the value of the shares and there is reasonable assurance that the company will collect the amount in cash. Warfield. McConomy Intermediate Accounting. Solutions Manual 15-85 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Wiecek.Kieso. Young. . distribution. or transmission of this page is strictly prohibited. Ltd. 000. McConomy Intermediate Accounting.050.000 2-for-1 stock split Share Capital Contrib.950. Warfield.000 . Unauthorized copying.000 50.000 625.000 $10. Young.000) (50. distribution. Accum.000) 2.842.000) (157.070. Tenth Canadian Edition PROBLEM 15-14 SECORD LIMITED Statement of Changes in Shareholders' Equity Year Ended December 31.625.000 Total $35.000 $3.000.000 1.000) $200.000 2. $4.500.000) (1.000 Net income Other comprehensive income Balance December 31.000.200) (292.035. Weygandt.950.200 Solutions Manual 15-86 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.000 $36.000 1. Ltd.000) Declared dividends – preferred (1.000 Reacquired common shares (30.000) (1.000 625.000 (50.000.000 $10.000 Retained Earnings $5.000 $17. 2014 325.000.000 $250.035.000.000) Declared dividends – common (1.800 $200.800) (450.100.000 Issued preferred shares 25. Surplus – Preferred Surplus – Common $200.000 $3. Wiecek.100. 2014 Preferred Shares Number of Shares Share Capital Balance January 1.615.Kieso. 2014 300.950.707.000 2. Other Comprehensive Income 1.000 $16.190.000 Contrib. or transmission of this page is strictly prohibited.000 Issued common shares Common Shares Number of Shares 1. 070.000 Total shareholders’ equity $36.800 Number of Pref.Kieso.000 1. 1.000 Solutions Manual 15-87 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. Unauthorized copying.467.000.842. Ltd.000 2.800 Total share capital 14. distribution.000.000 Retained earnings 4.000. Young.375.100.200 Total paid-in capital 31. $ 3. . 625.000 Preferred Shares Bal. Wiecek.842. 1. McConomy Intermediate Accounting.000 1.000 4. or transmission of this page is strictly prohibited.000.000 157.000 Bal. Shares Bal. unlimited shares authorized 2. Warfield.800 Contributed Surplus 16. Common Shares Bal.000 shares issued and outstanding $ 3. 300.907. 1.190. (30. 2.625.000 2.000 shares issued and outstanding 10.000 4.070. 50.000 Accumulated other comprehensive income 200.625.000 325. 2.000 shares authorized 325.000.000) Bal. Weygandt. Tenth Canadian Edition PROBLEM 15-14 (Continued) SECORD LIMITED Shareholders’ Equity December 31.000 3. 2014 Share Capital Preferred shares.000 $ 3.000 Common shares. 1.000 Number of Common Shares Bal. X 2 Bal.200 $10. $10.615.050. 25. $6 dividend. Weygandt. 31 25. 1.000 X $6 = $1.000 Acc.100. Wiecek.000 sh.000 X $0.50 = $1. Other Comp. 3. changes in retained earnings are presented in a statement of retained earnings.200 Retained Earnings Bal. $200. 1.000 7.070.035. and changes in capital accounts are presented in the notes to financial statements.950.200 30.000 $200.000 Contributed Surplus —Pref. 4. $17. .24) = $292. Ltd.100.800 Net income Other comprehensive income (loss) = $2.000 $4. $5. Income Bal. Jan. distribution. $250. Feb. 31 Dec.707.000 – $2.000 X $5.000 2. Dec. Young. 6. Warfield. 292.000 5.615.000. Solutions Manual 15-88 Chapter 15 Copyright © 2013 John Wiley & Sons Canada.500.050.050.000 X $25 50.000 X $20 stock split: 1.000) 325.000. 2. Bal.Kieso. or transmission of this page is strictly prohibited.) = 30.000 ÷ 2.000 1.000 $200. 7.100. McConomy Intermediate Accounting. 2. Tenth Canadian Edition PROBLEM 15-14 (Continued) Contributed Surplus —Common Bal.000 6.035.000 8.950.000 X ($15 – $5.24 (rounded) = $157.000 9. Under ASPE.000 = ($50.000 (b) Other comprehensive income and accumulated other comprehensive income are not recorded under ASPE.800 $16. June July 1 1 1 1 5.000 shares X 2 30. Unauthorized copying. 50.000 X ($11. 31 8. 31 Dec. 9. July 1 Dec. 000 $140. Weygandt. 2014 Balance.000 23.000 Common Shares 380. Warfield.000 380.000 $31. January 1. Wiecek.610.680.000 (Stock dividend of 5%.200.680.380. or transmission of this page is strictly prohibited.Kieso. 2014. For the purposes of the dividend.000 shares) (b) Retained Earnings 380.000 Gateway Corporation Statement of Retained Earnings For the Year Ended December 31.000 3. at $38 per share) (c) SHAREHOLDERS’ EQUITY Paid-in capital: Common shares Issued 210.000 shares.70 per share on 200. Unauthorized copying.000 Cash 140. the shares were assigned a price of $38 per share based on the fair value of the shares at the dividend declaration date.000 520. Ltd.000 Note: The 5% stock dividend (10. distribution.000 24.200.000 1. .000 (Cash dividend of $0.680. 2014 Net income for 2014 Deduct dividends on common shares: Cash dividend Stock dividend (see note) Balance December 31. Young.250.000 4.300.000 6.000 $23.000. Tenth Canadian Edition PROBLEM 15-15 (a) Retained Earnings 140. 10. 2014 $21.000 shares) was declared and distributed to shareholders of record at the close of business on December 31. Solutions Manual 15-89 Chapter 15 Copyright © 2013 John Wiley & Sons Canada. McConomy Intermediate Accounting.000 shares Contributed surplus Total paid-in capital Retained earnings Accumulated other comprehensive Income Total shareholders’ equity $ 2. 300.000 $ 1.100. Young.000 380. Tenth Canadian Edition PROBLEM 15-15 (Continued) (d) Gateway Corporation Statement of Changes in Shareholders' Equity For the year ended December 31.000 10. $ 1.680.300.000 150.200. 2014 Balance.000 3.000 .000 Chapter 15 Total $ 28. McConomy Intermediate Accounting. Weygandt.610. or transmission of this page is strictly prohibited. Unauthorized copying.000 0 (140.000 150.000 $ 4.200.400.000) $ 23.380.000 210.000 $ 4.000) $ 31.000 (380.000) (140.000 Accumulated Other Retained Comprehensive Earnings Income $ 21. December 31 Common Shares Number of Share Contributed shares Capital Surplus 200.000.Kieso.000 3. Ltd. Warfield.000 $ 2.000 $ 2.350.000 Solutions Manual 15-90 Copyright © 2013 John Wiley & Sons Canada. distribution.000 3. Wiecek. January 1 Net income Other comprehensive income Comprehensive income Issuance of common shares through stock dividend Cash dividend Balance.000.250.
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