BRIEF EXERCISE 15-9

Aug. 1 Retained Earnings
Dividends Payable

900,000

900,000

Aug. 15 No entry.
Sep. 9

Dividends Payable
Cash

900,000

900,000

BRIEF EXERCISE 15-10
Sep. 21

Investments (FV-NI)
Investment Income/Loss
(FV-NI)
($1,300,000 – $850,000)

450,000

Retained Earnings
Property Dividends
Payable

1,300,000

450,000

1,300,000

Oct. 8

No entry.

Oct. 23

1,300,000
Property Dividends Payable ................................
Investments (FV-NI) ................................ 1,300,000

. would be debited first. if related to the same class of shares.BRIEF EXERCISE 15-11 Apr.000 150.000 *Any balance in contributed surplus.000 400.000 400. 20 June 1 Retained Earnings Common Shares* Dividends Payable 250.000 Dividends Payable Cash 400.

2012 Share Capital Number of Legal Shares Capital Bal. 1.000 (23.000 25.830.000 2. 2012 32.000) Other Contributed Capital $540.822.000) (70.000 $65.000) 400.000 30.000) Retained Earnings $1.000 $807.000 $120.500.880.000 (443.000 33.000 $40.000 Accumulated Other Comprehensive Income $1.000 (420. 31.000 Total $2.000 (70. Jan.000) $800.000 30.BRIEF EXERCISE 15-16 (a) THE RED DOG RESTAURANT LIMITED Statement of Changes in Shareholders' Equity Year Ended December 31. Dec.000 25.000 $2.000 .000 (1. 2012 Issued common shares Repurchase of shares Declared dividends Comprehensive income: Net income Holding gain Bal.000) 400.

...000 Total shareholders’ equity .................822...BRIEF EXERCISE 15-16 (Continued) (b) THE RED DOG RESTAURANT LIMITED Balance Sheet (Partial) December 31.................................... 2012   Share Capital Common shares....... 65................ $2.............................. 1..000 ...000 shares issued............ unlimited shares authorized) ............. no par value (33....000 Contributed surplus ..000 Retained earnings .........000 Accumulated other comprehensive income ......... $ 807..000 Total paid-in capital . 927........................830...... 120........................................

....EXERCISE 15-3 (10-15 minutes) (a) 1... Land (3........000 Contributed Surplus ..................500 Share repurchases are recorded at the average issue price per share.................000) is used to value the exchange because it is a more objective measure than the appraised value of the land ($140............ 14...... 178..... 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.........750 X $32) .........000] ...... 3.......000)........500 Cash (500 X $29). 4...........000 Note: The market value of the share ($120.... 19...................... ... The original issue price of the individual shares being repurchased is not used...... Cash [(6... 178.............. or the average price at which the shares were issued for that class of shares.000 Common Shares.......000 Common Shares.......000 2..... 120.......... 120............ (b) Common Shares (500 X $38).................................000 X $30) – $2........

000) (10.000 shares X $100 par value) = $475.000 / 300. issued and outstanding 290. issued and outstanding 10.000 shares.155.000 – (10.500 shares 52.000 X (10.600.600** $5.305. 2012 Shareholders’ equity: Share capital: Preferred shares.000 $3. authorized 300.500 817.500 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: Subscriptions receivable Total shareholders’ equity $1.000 – (300.305. authorized 1.500 **$16 X 10.000 5.000. $11 par value.000 From sale of common share subscription: ($16 per share – $11 par value) X 10.273.000 shares.123. 6% cumulative and nonparticipating.000 117.500 From repurchase and retirement of common shares: $300.500 4.000.*EXERCISE 15-4 (20-30 minutes) (a) RADFORD CORPORATION Partial Balance Sheet As of December 31.500* 5. 10.000 150. $100 par value.190.000 115.000 shares X $11 par value) = 300.000 shares Common shares.500 X (1 – 30%) *** .475.000) $817.000 shares Common shares subscribed.400 *Contributed surplus balance is composed of the following: From issue of preferred shares: $1.000 From sale of common shares: $3.500 3.

000 $3.000 168.000.155.400 Retained earnings balance $180.000 Less: repurchase of common shares: Purchase price $150.000 5.000 shares issued Common shares.000 Less: par value of common shares ($10.000 X $11) ( 110.000 shares authorized.*EXERCISE 15-4 (Continued) *** Retained earnings balance $180.000 ) Adjusted balance of retained earnings $150.000 ) Less: pro-rata portion of contributed surplus ( 10. 10.000 * .000 Less repurchase and retirement of common shares: Purchase price $150.600 $5. 10.000 3.000 117. 2008 Shareholders’ equity: Share capital: Preferred shares.500 shares Total common shares issued and to be issued Total share capital Retained earnings Total paid-in capital and retained earnings Less: Subscriptions receivable Total shareholders’ equity * $1.000 ) Adjusted balance of retained earnings $150. 30.475.000 5.648. 290. authorized.480.000 shares.000 shares issued Common shares subscribed. 6% cumulative and nonparticipating.000 ) ( 30.000 Less stated value of common shares ($10.000 X $12) ( 120. 1.000 (b) RADFORD CORPORATION Partial Balance Sheet As of December 31.000 150.273.000 ) ( 30.123.

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.EXERCISE 15-4 (Continued) (c) The Subscriptions Receivable account can be shown as a contraequity account in shareholders’ equity or as a receivable in the asset section of the balance sheet. Both presentations are acceptable under IFRS and private enterprise GAAP although the contra-equity presentation reflects “paid-in” capital more accurately and is required in some jurisdictions. .

.... 17... 15...000 No gain can be recognized on the issuance of shares..000 Cash (1........... ......... The difference between the average per share amount and the purchase price is credited to Contributed Surplus....... 400...000 Preferred Shares .......000 X $15) . The common shares are recorded at their issue price..........................000 The share account is debited for the average per share amount in the account ($17 per share based on the May 12th transaction)............. May 31 Cash .000 The transaction involves the issue of preferred shares common shares........ 400......................000 Contributed Surplus ........000 X $17)...000 9........ 9........................................................... May 10 Cash .. May 15 rather than Common Shares (1.....EXERCISE 15-5 (15-20 minutes) May 12 The entry is correct.................. Common Shares ........... 2.........

000 = $12.000 Total carrying amount $42.000 ÷ $580. nonparticipating $63.414 19.000 ÷ $580.000 $95.000 – $21.000 21.400** ($280.EXERCISE 15-8 (10-15 minutes) Preferred Common Total (a) Preferred share is non-cumulative.400 .000 $300.000 $19.414 5.000 * Dividend rate per share of $7 divided by $100 stated value for the preferred shares.000 $580.000) X $12.600 6.000 $95.986 $95.000) X $12.414 _______ $69.000 $280.000 Dividends in arrears Current dividend Pro rata share to common ($280.000 X 7%*) Balance dividend pro rata ($300.586 $95.000 (c) Preferred share is cumulative.586 5.000 (b) Preferred share is cumulative.600 6.000 $42.000 21.986 $25.000 Common: $40 X 7.400 Carrying amount: Preferred: $100 X 3. participating $69.000 – $42. non-participating $21.000 $74.000 $32.414 $25. ** $95.

.. No entry—simply a memorandum indicating the number of shares has increased to 18 million....” For accounting purposes the 20%-25% rule reasonably views large stock dividends as substantive stock splits..............287......287.......... Stock Dividend Distributable ..000 Retained Earnings...000..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.....000........287...... 1.287.000 (9.000 shares X $143) Stock Dividend Distributable ..... Stock dividends are sometimes referred to as “capitalization of earnings”... 2......... Both techniques allow the Board of Directors to increase the quantity of shares outstanding and channel share prices into the “popular trading range...000 (b) Large stock dividends and splits serve the same function with regard to the securities markets........................ .......... 1....... 1.000.000.....000...... 1..........EXERCISE 15-11 (10-15 minutes) (a) 1.

000 X 10% X $59) 2.............360...........000 X $59) ....................... 23..........000 Common Stock Dividend Distributable ...................000 Common Stock Dividend Distributable ....... 23................000 (b) Retained Earnings (400..................................EXERCISE 15-12 (10-12 minutes) (a) Retained Earnings ........................ 23.........................000 Common Shares ............ 23.............360...600.360. 2.......600............360..................000 Common Shares ............600... (400...000....... ............ 2..000 (c) No entry.......600............000 Common Stock Dividend Distributable.... The number of shares outstanding increases to 800..........000 Common Stock Dividend Distributable................... 2..

..000 X $6)............... 4..... 15 Cash (10...................................000 Preferred Shares ... 30 Retained Earnings. 30.....000 Nov.................. 52............500 Cash (35. 2 Land ...000 Common Shares .......000 .... 60.............000 Retained Earnings............ 120.......50).............000 X $60)................... 60....... 4............500 Sept..... 120............................................. 52.....................000 Common Shares ........000 Cash (2............ 31..........000 Cash (500 X $62) ................ 25.......000 Feb........... 15 Preferred Shares (500 X $60).....000 X $2) .. 12 Cash (2................ 31 Retained Earnings.............................. 1....................................EXERCISE 15-15 (15-20 minutes) (a) Jan...............................000 X $1.........000 Jun... 25.000 Oct...........

000 25.000) (1.000 2. 2012 Number Number of of Common Common Preferred Preferred Shares Shares shares Shares – – 25. common shares Dividends.000 $839. 2012 Shares issued for cash Shares issued for land Dividends.000) 532.000) 532.000 $180.000 _ _ $185.000 $120.000 $1. December 31.000 (500) _ 1. Statement of Shareholders’ Equity Year ending December 31.500) (4. preferred shares Shares purchased and retired Net Income Balance.000 (52.000) _ $90. January 1.000 $100.000 5.500 .EXERCISE 15-15 (Continued) (b) Balance.500 Total Shareholders’ Equity $465.114.500) (4.500 (30.000 Retained Earnings $365.000 (52.000 10. 2012 Miss M’s Dance Studios Ltd.000 _ 40.000 25.000) (31.000 60.

000 700.000.520 314.130 188.000. .820. The interest cost (net of tax) of this income was $66. This interest cost must be reduced by the tax savings (45%) related to the interest.130 $ 0 $ 47. The schedule indicates that the income earned on the total assets (before interest cost) was $659.970 $659.520 66.200 0 314.820.71% **The cost of funds is the interest of $120. which indicates a net return to the common equity of $593.820 *Determined in part (a).000 $593. Kao Corp. Fund Supplies Current liabilities Long-term debt Common shares Retained earnings Funds Supplied $ 300.000 2.200 109.000 $4.970 0 109.71%* Funds Shares $ 47.000 1. the following schedule might be provided to the student.000 ** 122.200.200.000 (1.000 Rate of Return Accruing to on Funds at Cost of Common 15.820 $66.000 X 10%).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. 15.200.

94 ($594. The excess was financed by borrowed assets and represents additional income for the shareholders and has resulted in the higher income per share.55 ($660. yet may lead to increased risk in the case of an economic downturn.EXERCISE 15-17 (Continued) (a) The Kao Corp. The Kao Corp. Book value per share.000 = $27. from the point of view of income it is advantageous for the shareholders of Kao Corp. (d) $101 $5.900. (b) Yes.000.55 = 17 times earnings. Kao has fewer shares outstanding.000 ÷ 145.000 Bennington Corp. has borrowed a substantial portion of its assets at a cost of 10% and has used these assets to earn a return in excess of 10%. earned a net income per share of $5. (c) Price earnings ratio.000 = $24. to have long-term debt outstanding. $2. $2.000). The assets obtained from incurrence of this debt are earning a higher return than their cost to Kao Corp. Bennington Corp.83 145.000 + $700. which is evidence of leverage.000 ÷ 100.94 $63.000 + $700. = 14 times earnings. had net income per share of $4. Due to the debt financing. Kao Corp.000) while the Bennington Corp.00 100. Kao Corp.50 $4.000 .

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