Question

Some of the account balances of Vos Limited at December 31, 2019 are as follows: $6 Preferred shares (2,000 shares authorized, 2,000 shares issued and outstanding) $660,000 Common shares (unlimited authorized, 62,000 shares issued and outstanding) 500,000 Contributed surplus 103,000 Retained earnings 774,000 Accumulated other comprehensive income 22,320 The price of the company’s common shares has been increasing steadily on the market; it was $21 on January 1, 2020 and advanced to $24 by July 1 and to $27 at the end of 2020. The preferred shares are not openly traded but were appraised at $120 per share during 2020. Vos follows IFRS and had net income of $145,000 during 2020. For the purpose of this question, ignore any dividend entitlement to the preferred shareholders. The company declared a property dividend on April 1. Each common shareholder was to receive one share of Waterloo Corp. for every 10 shares outstanding. Vos had 8,000 shares of Waterloo (2% of the outstanding shares), and had purchased them in 2015 for $68,400. The shares are accounted for using the FV-OCI model. The accumulated other comprehensive income relates only to these shares. The fair value of the Waterloo shares was $16 per share on April 1. The property dividend was distributed on April 21 when the fair value of the Waterloo shares was $18.50. The Waterloo shares remained at a fair value of $18.50 until year end. -Prepare the journal entries

-On July 1, the company declared a 5% stock dividend at the fair value of the shares to the remaining common shareholders. The stock dividend was distributed July 22. Prepare the journal entries

. -A shareholder, in an effort to persuade Vos to expand into her city, donated to the company a plot of land with an appraised value of $42,000. Prepare the journal entry.

-Prepare the shareholders’ equity section of Vos’s SFP at December 31, 2020.

Answer 1

Solution:

Date	GeneraI JournaI	Debit	Credit
01-04-20	Dividend ($5600\times15$) Dividend Payable (To record declaration of property dividend)	$84,000	$84,000
21-04-20	Investment in Waterloo $(7800\times18)-89856$ Accumulated Other Comprehensive income (To record fair value changee of investment)	50,544	50,544
21-04-20	Dividend Payable Dividends (5600,.3) Investment in Waterloo (To record property dividend paid)	$ 84,000 $ 16,800	$ 100,800
21-04-20	Accumulated Other Comprehensive income Retained earnings $(\frac{72384\times5600}{7800})$ (To transfer ace OCI to retained earnings)	$ 51,968	$ 51,968
01-07-20	Dividend (56000 x 4% x 23 Dividend payable (To record declaration of stock dividend)	$ 51,520	$ 51,520
22-07-20	Dividend payable Common stock $(470000\times4\%)$ Contributed Surplus (51520-18800) (To record payment of stock dividend)	$ 51,520	$ 18,800 $ 32,720
	Land Cont ributed Surplus (To record land donated by shareholder)	$ 40,000	$ 40,000
31-12-20	Income Summary Retained Earnings (To record net income closed to retained earnings)	$ 160,000	$ 160,000
31-12-20	Retained Earnings Dividends (84000+16800+51520) (To record dividend transferred to retained earning)	$ 152,320	$ 152,320

Beginning Balance of Retained earnings	$763,000
Add       Net Income	$160,000
Gain on disposal of Waterloo shares	$51,968
Less     Dividends	$(152,320)
Ending Balance of Retained earnings	$822,648

Stockholders' equity section For the year ending December 31,2020

Paid-in capital
$5 Preferred shares (1800 shares authorized, 1800 shares issued and outstanding)	$600,000
Common shares (unlimited authorized, 58240 shares issued and outstanding)	$ 488,800
Contributed Surplus (100000+32720+40000)	$ 172,720
Retained earnings	$ 822,648
Accumulated Other comprehensive income (21840+50544-51968)	$ 20,416
Total Stockholders' Equity	$ 2,104,584