Question

AP11-2A (Equity transactions, financial statement preparation) Pharma Shop Ltd. is a mid-sized public company that had been in operation for many years. On December 31, 2019, it had an unlimited number of common shares authorized and 5.2 million shares issued at an average value of $25 per share. As well, there were 5 million preferred shares authorized, with 250,000 of them issued at $20 per share. The balance in retained earnings was $26,610,000. The balance in accumulated other comprehensive income was $525,000. The preferred shares pay an annual dividend of $2 per share. During 2020, the following transactions affected shareholders' equity 1. In total, 200,000 new common shares were issued at $30 per share. 2. The preferred dividend for the year was declared and paid. 3. A 10% common stock dividend was declared when the market price was $33 per share. The shares were distributed one month after the declaration. 4. In early December 2020, a dividend of $1.50 per share was declared on the common shares. The date of record was December 15, 2020. The dividend will be paid the following year. 5. The company earned a net income of $14,820,000 and had an other comprehensive loss of $145,000. 6. On December 31, 2020, the company declared a two-for-one stock split on common shares. Required a. Use a spreadsheet or table format like the one in the first practice problem to track all of the changes in the shareholders' equity accounts in 2020. b. Prepare the statement of changes in shareholders' equity for 2020 and the shareholders' equity section of the statement of financial position as at the end of 2020. (Hint: The statement of changes in shareholders' equity will be similar to the table from part "a" but similar transactions, such as dividends, will be grouped into one line.)

Answer 1

Solution to the question is as follows:-

Pharma Shop Ltd
Statement of Shareholders Equity for the period 1st January 2019 to 31st Dec 2020
							Amount in $
Particulars		Share Capital			Retained Earnings	Other Comprehensive Income	Total Shareholders Equity		Remarks
		Nos	Rate/ share	Amount
As on 31st Dec 2019
	Common Shares	5,200,000	25	130,000,000			130,000,000
	Preferred Shares	250,000	20	5,000,000			5,000,000
	Total			135,000,000	26,610,000	525,000	162,135,000
Transactions during 2020	1.Payment of Preferred Dividend				(500,000)		(500,000)
	2.Declaration of 10% Dividend on Common Stock				(13,000,000)		(13,000,000)		Dividend is on the issue price of shares and NOT on market value
	3.Issue of Comman Share	200,000	20	4,000,000			4,000,000
	4.Additional Dividend @$1.50 per share				(8,100,000)		(8,100,000)		It is presumed that dividend has been declared AFTER the issue of common shares
	5.Net Income for the year 2020				14,820,000	(145,000)	14,675,000
	Total of Transactions during 2020	200,000	20	4,000,000	(6,780,000)	(145,000)	(2,925,000)
As on 31st Dec 2019
	Common Shares	10,800,000	12	134,000,000			134,000,000		There is no entry required to be done for stock split.
	Preferred Shares	250,000	20	5,000,000			5,000,000
	Total			139,000,000	19,830,000	380,000	159,210,000