Problem 14 2A to 14 6A PDF

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Download Problem 14 2A to 14 6A PDF

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PROBLEM 14-2A (a) Date

GENERAL JOURNAL Account Titles

J1 Debit

Jan. 15 Cash Dividends—Common................... 90,000 Dividends Payable (90,000 × $1)......

Credit

90,000

Jan. 31 Date of record – No entry required Feb. 15 Dividends Payable.................................. 90,000 Cash....................................................

90,000

July 01 Memo: 3-for-2 stock split increases the number of shares to 135,000 (90,000 × 3 ÷ 2) Dec.015 Common Stock Dividends..................... 135,000 Common Stock Dividends Distributable (135,000 × 10% × $10). 135,000 30 Date of record – No entry required 31 Income Summary................................... 315,000 Retained Earnings............................. 315,000 [($450,000 × (1 – 30%)] 31 Retained Earnings.................................. 225,000 Cash Dividends—Common............... 90,000 Common Stock Dividends................ 135,000

PROBLEM 14-2A (Continued) (b) Common Shares Date Jan.

Explanation 1 Balance

Ref. 

Debit

Credit

Balance 1,100,000

Common Stock Dividends Distributable Date

Explanation

Dec. 15

Ref.

Debit

J1

Credit 135,000

Balance 135,000

Cash Dividends—Common Date

Explanation

Jan. 15 Dec. 31 Closing entry

Ref. J1 J1

Debit

Credit

90,000 90,000

Balance 90,000 0

Common Stock Dividends Date

Explanation

Dec. 15 31 Closing entry

Ref.

Debit

Credit

J1 135,000 J1 135,000

Balance 135,000 0

Retained Earnings Date

Explanation

Jan. 1 Balance Dec. 31 Closing entry 31 Closing entry

Ref. Debit Credit Balance  540,000 J1 315,000 855,000 J1 225,000 630,000

PROBLEM 14-2A (Continued) (c) LEBLANC CORPORATION Partial Balance Sheet December 31, 2017 Shareholders' equity Share capital Common shares, no par value, unlimited number of shares authorized, 135,000 shares issued... $1,100,000 Common stock dividend distributable................ 135,000 Total share capital................................................. 1,235,000 Retained earnings...................................................... 00,630,000 Total shareholders' equity............................... $1,865,000 Taking It Further: From the perspective of an investor, the advantage of a stock dividend or a stock split is that the shares can become more affordable to another investor who is willing to buy the shares on the stock market. The disadvantage of a stock dividend is that they are taxable when received, but no additional cash is made available to pay the applicable taxes. Some of the additional shares issued on a stock dividend may need to be sold to generate the cash needed to pay the income tax on the stock dividend. For stock splits, there are no disadvantages to the investor.

PROBLEM 14-3A (a) Shares authorized Shares issued - refer to part (b)

1,000,000 437,000

(b) Common shares Contributed Surplus—reacquisition of Common shares Retained earnings

$1,351,330 $6,750 $719,420

Calculations:

Bal 1. 2. 3. 4. 5.

Common shares (a)

Number of shares (b)

$1,500,000 147,000 1,647,000 (30,800) 1,616,200 22,500 1,638,700 (55,620) 1,583,080 (231,750) $1,351,330

500,000 35,000 535,000 (10,000) 525,000 5,000 530,000 (18,000) 512,000 (75,000) 437,000

Cont. surplus — reacq. of common shares

Retained earnings

$3.00

$15,000

$720,000

3.08

15,000 (1) 800 15,800

720,000

Average per share amount (a) ÷ (b)

3.08 3.09 3.09 3.09

720,000

15,800 720,000 (2) (15,800) (580) 0 719,420 (3) 6,750 _ $ 6,750 $719,420

(1) (10,000 × $3.08) − (10,000 × $3) = $30,800 − $30,000 = $800 (2) (18,000 × $3.09) − (18,000 × $4) = $55,620 − $72,000 = $(16,380). A maximum of $15,800 is deducted from contributed surplus; the remainder, $580, is deducted from retained earnings. (3) (75,000 × $3.09) – (75,000 × $3) = $231,750 − $225,000 = $6,750

PROBLEM 14-3A (Continued) Taking It Further: Reporting the number of shares authorized and issued allows shareholders to determine how many additional shares can be sold and how much their share ownership can potentially be diluted. If there are a maximum number of shares authorized, this would also determine how many additional shares can be issued to raise capital. Knowing the number of shares issued allows investors to determine their percentage ownership.

PROBLEM 14-4A

Calculations needed for parts (a) and (b) Common Shares (1) (2) Date Jan. 1, Feb. 11 Subtotal Mar. 2 Subtotal June 14 Subtotal Sept. 16 Subtotal Dec. 13 Bal.

No. of Shares 150,000 50,000 200,000 (20,000) 180,000 180,000 360,000 (50,000) 310,000 15,500 325,500

Total Cost $2,400,000 1,000,000 3,400,000 (340,000) 3,060,000

Jan. 1, July 25 Bal.

No. of Shares 5,000 (500) 4,500

17.00 17.00 17.00

3,060,000 (425,000) 2,635,000 294,500 $ 2,929,500

Preferred Shares (1) (2) Date

(3) Average per Share Amount $16.00

Total Cost $375,000 (37,500) 337,500

8.50 8.50 9.00

(3) Average per Share Amount $75.00 75.00 75.00

PROBLEM 14-4A (Continued) (a) Feb. 11 Cash.................................................. 1,000,000 Common Shares.......................... 1,000,000 (50,000 shares × $20) Mar. 2 Common Shares (20,000 × $17.00)..................................... 340,000 Contributed Surplus— Reacquisition of Common Shares........ 30,000 Retained Earnings.................................. 70,000 Cash (20,000 × $22)......................... 440,000 July 25 Preferred Shares (500 × $75)................. 37,500 Contributed Surplus— Reacquisition of Preferred Shares. Cash (500 × $70)..............................

2,500 35,000

Sept. 16 Common Shares (50,000 × $8.50)......... 425,000 Retained Earnings.................................. 425,000 Cash (50,000 × $17)......................... 850,000 Oct. 27 Stock Dividends (15,500 × $19)............. 294,500 Stock Dividends Distributable........ 294,500 Dec. 13 Stock Dividends Distributable.............. 294,500 Common Shares.............................. 294,500 (b) Share capital Preferred shares $4 cumulative, convertible, 100,000 authorized, 4,500 shares issued Common shares, unlimited number of shares authorized, 325,500 shares issued

$ 337,500 2,929,500

PROBLEM 14-4A (Continued) Taking It Further: The Contributed Surplus account is reported in shareholders’ equity because it represents equity contributed by shareholders who are willing to take less money than the average per share amount paid for shares being repurchased.

PROBLEM 14-5A

(a) PORT HOPE CORPORATION Income Statement Year Ended November 30, 2017 Sales................................................................................ $9,124,000 Cost of goods sold......................................................... 7,280,000 Gross profit..................................................................... 1,844,000 Operating expenses ............................ $1,120,000 Depreciation expense.......................... 355,000 1,475,000 Profit from operations.................................................... 369,000 Other revenues............................................................... 48,000 Profit before income taxes............................................ 417,000 Income tax expense*...................................................... 104,250 Profit from continuing operations................................ 312,750 Discontinued operations Profit on discontinued operations of communications devices division net of $5,000** income taxes.............. $15,000 Loss on disposal of discontinued communications devices division net of $18,750*** income tax savings 56,250 41,250 Profit........................................................... $271,500 Earnings per share Profit...................................................................... $271,500 – $25,000 = $1.23 200,000

* ($417,000 × 25%) = $104,250 ** ($20,000 × 25%) = $5,000 *** ($75,000 × 25%) =$18,750

$1.23

PROBLEM 14-5A (Continued) (b) PORT HOPE CORPORATION Statement of Comprehensive Income Year Ended November 30, 2017 Profit........................................................... Other comprehensive loss Loss on equity investment, net of $20,750* in income tax savings...................... Comprehensive income............................

$271,500 62,250 $209,250

*($83,000 × 25%) = $20,750 Taking It Further: It is important to report gains and losses from discontinued operations separately from continuing operations because they represent atypical items. Investors trying to get a picture of the company’s future growth potential should not include discontinued operations in their analysis of future earnings potential because they will not exist in the future. Profit from continuing operations is a better indication of ongoing performance of the business on a comparative basis.

PROBLEM 14-6A

(a) 2017 Mar. 17 Notes Payable.................................. Income Taxes Payable................ Retained Earnings....................... ($57,000 × 25% = $14,250) (b) Apr. 10 Common Shares.............................. Retained Earnings............................ Cash..............................................

57,000 14,250 42,750

75,000 22,500 97,500

(c) Profit Year Ended October 31, 2017 Fees earned..................................................................... $1,476,000 Operating expenses ............................ $929,000 Depreciation expense.......................... 87,000 1,016,000 Profit from operations.................................................... 460,000 Interest expense............................................................. 54,000 Profit before income taxes............................................ 406,000 Income tax expense*...................................................... 101,500 Profit................................................................................ 304,500 * ($406,000 × 25%) = $101,500

PROBLEM 14-6A (Continued) (d) ZUG LIMITED Statement of Retained Earnings Year Ended October 31, 2017 Balance, November 1, 2016 as previously reported Add: Correction of error in recording payment on notes payable in 2016, net of $18,750 income tax expense......................................... Balance, November 1 as adjusted....................... Add: Profit.............................................................. Less: Reacquired common shares $ 22,500 Cash dividends.................... 120,000 Balance November 30, 2017.................................

$ 575,000 42,750 617,750 304,500 922,250 142,500 $779,750

Taking It Further: Financial statements are generally presented on a comparative basis to help the user of the financial statements make comparisons and assess trends in performance. In order for the information to be comparable, the financial statement of the prior period must be corrected to rectify the information affected by the prior year error....