Question

Stellar Corp. had the following shareholders' equity on January 1, 2020: Common shares, unlimited number authorized, 100,000 shares issued and outstanding $ 280,000 Contributed surplus 302,000 Retained earnings 2,430,000 Total shareholders' equity $3,012,000 The contributed surplus arose from net excess of proceeds over cost on a previous cancellation of common shares. Stellar prepares financial statements in accordance with ASPE. The following transactions occurred, in the order given, during 2020. 1. Subscriptions were sold for 12,200 common shares at $22 per share. The first payment was for $10 per share. 2. The second payment for the sale in item 1 above was for $12 per share. All payments were received on the second payment except for 1,900 shares. 3. In accordance with the subscription contract, which requires that defaulting subscribers have all their payments refunded, refund cheques were sent to the defaulting subscribers. At this point, common shares were issued to subscribers who had fully paid on the contract. 4. Repurchased 22,060 common shares at $31 per share. They were then retired. 5. Sold 4,800 preferred shares and 3,700 common shares together for $301,000. The common shares had a fair value of $32 per share. a) b) Prepare the journal entries to record the transactions for the company for 2020. Assume that the subscription contract states that defaulting subscribers forfeit their first payment. Prepare the journal entries for items 2 to 4 above.

Answer 1

SOLUTION TO PART A

1. Cash of Subscribtion recievable To common shares ...Dr 122,000 146,400 Subscribed . Di 268,400 2. Cash [140 10,300 x12 To Subscribtion Do 123,600 Recievable l ine 123,600 Common share Subscribed Al..... 226,600 - To common shares (10,300 $22) 226,600

3. common share subscribed ..Dr. 41,800 To subscribtion recievable To cash 22,800 19,000

- Average capital / share (see rate below) = $506,600 110, 300 = $4.59/share. Total share capital - Retired share = $4.59 X 22,064 =$101.255 Cash paid = 22,060 × $31 = 683,860 Common Share Di. Contributed surplus - Cancellation .... Retained Earnings Cash 10l 255 302,000 280 605 - .o 683860 & NOTE:- - Total common share capital = 280,00) + 226,60 = $506,600 Number of common share = 100,300 + 10,300 = 110,300

5 Total Amount recieved = $301, 075 Ossigned to's common share ca $ 118,400 cora proferred share on = $ 186,200 Cash 301,000 Alc To TO to ..De Share Share Common Preferred TO 118.400 186 200

SOLUTION TO PART B

* Contribution surplus = 19,000 x 22,060 ÷ 110,300 = 3,800

1 & 2 same Dr. 41,800 3. Comman a To To share subscribed Subscription recievable contributed surplus. 22,800 19.009 -p 226,600 Common shane subscribed To Comroon share 226600 Common share Dr lol, 255 Goihibution surplus - Cancellation in Do 302,000 Contribution surplus a Doctor 3,800 Retained earnings 276,805 To Cash 683860