Question

Monty Corporation’s charter authorized 1 million shares of $13 par value common shares, and 400,000 shares of 6% cumulative and non-participating preferred shares, with a par value of $100 per share. The corporation made the following share transactions through December 31, 2020: 270,000 common shares were issued for $3.78 million and 10,000 preferred shares were issued for machinery valued at $1,411,000. Subscriptions for 10,500 common shares have been taken, and 25% of the subscription price of $19 per share has been collected. The shares will be issued upon collection of the subscription price in full. In addition, 12,000 common shares have been repurchased for $18 and retired. The Retained Earnings balance is $160,000 before considering the transactions above.

a) Prepare the shareholders’ equity section of the SFP in good form.
b) Prepare the shareholders’ equity section of the statement of financial position in good form. Assume that the common shares and preferred shares are no par.

Answer 1

Solution:

Monty Corporation’s

Statement of Financial Position

December 31, 2020

Shareholders’ Equity	$
Authorised Capital 10,00,000 Common Stock of $ 13 per share 4,00,000 6% Preferred Stock of $ 100 per share	130,00,000 400,00,000
Issued Capital 258,000 Common Stock of $ 13 per share 10,000 6% Preferred Stock of $ 100 per share 10,500 Common Stock subscribed of $ 13 per share Reserve & Surplus Additional Paid-in-Capital (APIC) Retained Earnings	33,54,000 10,00,000 1,36,500 6,84,000 1,60,000
Shareholders’ Equity	53,34,500
Less: Subscription receivable of Common Stock of $ 13 per share	(1,49,625)
Total Shareholders’ Equity	51,84,875

Working Notes:

(1) Common Stock                                            $

Issued 270,000 stock @ $ 13                     35,10,000

Less: Buy Back 12,000 @ $ 13                 (1,56,000)

Common Stock                                             33,54,000

(2) Additional Paid-in-capital (APIC)                                                $

On issue of Common Stock (270,000 shares x $ 1)                  270,000

On issue of Preferred Stock (10,000 shares x $ 41.10)            4,11,000

On subscription received (10,500 shares x $ 6)                            63,000

                                                                                                    7,44,000

Less: on buy-back of shares (12,000 x $ 5)                                (60,000)

Additional Paid-in-capital (APIC)                                                  6,84,000