P14.4B:The following shareholders' equity accounts are reported by Talty Inc. on January 1:
Common shares (unlimited authorized, 500,000 issued) $4,000,000 Preferred shares ($9 noncumulative, convertible, 100,000 authorized, 4,000 issued) 600,000 Contributed surplus—reacquisition of common shares 2,000 Retained earnings 1,958,000
The following selected transactions occurred during the year:
Jan. 17 Issued 50,000 common shares at $10 per share. Feb. 27 Reacquired 20,000 common shares at $12 per share. Apr. 14 Split the common shares 2 for 1 when the common shares were trading at $20 per share. June 25 Reacquired 500 preferred shares at $145 per share. Aug. 16 Reacquired 100,000 common shares for $11 per share. Oct. 17 Declared a 5% common stock dividend distributable on December 3 to shareholders of record on November 14. On October 17, the fair value of the common shares was $10. Dec. 3 Distributed the stock dividend declared on October 17. On December 3, the fair value of the common shares was $12.50.
a. Prepare journal entries for the transactions.
b. Show how each class of shares will be presented in the shareholders' equity section of the balance sheet at December 31.
Taking It Further Provide possible reasons why Talty split the common shares and issued a stock dividend.
Calculations needed for parts (a) and (b)
|
Common Shares |
|||
|
(1) |
(2) |
(3) |
|
|
Date |
No. of Shares |
Total Cost |
Average per Share Amount |
|
Jan. 1, |
500,000 |
$4,000,000 |
$8.00 |
|
Jan. 17 |
50,000 |
500,000 |
|
|
Sub. |
550,000 |
4,500,000 |
8.18 |
|
Feb. 27 |
(20,000) |
(163,600) |
8.18 |
|
Sub. |
530,000 |
4,336,400 |
8.18 |
|
Apr. 14 |
530,000 |
||
|
Sub. |
1,060,000 |
4,336,400 |
4.09 |
|
Aug. 16 |
(100,000) |
(409,000) |
|
|
Sub. |
960,000 |
3,927,400 |
4.09 |
|
Dec. 3 |
48,000 |
480,000 |
|
|
Bal. |
1,008,000 |
4,407,400 |
4.37 |
|
Preferred Shares |
|||
|
(1) |
(2) |
(3) |
|
|
Date |
No. of Shares |
Total Cost |
Average per Share Amount |
|
Jan. 1, |
4,000 |
$600,000 |
$150.00 |
|
June 25 |
(500) |
(75,000) |
150.00 |
|
Bal. |
3,500 |
525,000 |
150.00 |
(a)
Jan. 17 Cash............................................................................... 500,000
Common Shares............................................................... 500,000
(50,000 shares × $10)
Feb. 27 Common Shares (20,000 × $8.18)............................... 163,600
Contributed Surplus—
Reacquisition of Common Shares............................... 2,000
Retained Earnings....................................................... 74,400
Cash (20,000 × $12)........................................... 240,000
June 25 Preferred Shares (500 × $150).................................... 75,000
Contributed Surplus—
Reacquisition of Preferred Shares...................... 2,500
Cash (500 × $145).............................................. 72,500
Aug. 16 Common Shares (100,000 × $4.09)................................... 409,000
Retained Earnings....................................................... 691,000
Cash (100,000 × $11)......................................... 1,100,000
Oct. 17 Stock Dividends (48,000 × $10)................................. 480,000
Stock Dividends Distributable........................... 480,000
Dec. 3 Stock Dividends Distributable.................................... 480,000
Common Shares.................................................. 480,000
(b)
Share capital
Preferred shares $9 noncumulative, convertible,
100,000 authorized, 3,500 issued $ 525,000
Common shares, unlimited number of
shares authorized, 1,008,000 issued 4,407,400