Deck 6: Corporations: Additional Topics and IFRS

Question 1

On January 1, 2021, Only You Merchandise Ltd. had 5,000 common shares issued for a total of $ 7,500, and no other shares or contributed capital. During 2021, Only You had the following transactions:
Jan 15 Issued 1,500 common shares for $ 1.50 each.
Mar 31 Settled an account for legal expenses by issuing 3,000 shares. The value of the legal services was $ 5,000.
Jun 30 Reacquired 1,700 shares for $ 2.00 each.
Sep 30 Issued 10,000 shares in exchange for equipment with a fair value of $ 22,500.
Instructions
a) Record the transactions.
b) Calculate the number and average price of common shares issued at the end of 2021.

Answer 1

Question 2

Strict Fitness Ltd. has a December 31 year end. On January 1, 2021, the company had the following shareholder's equity accounts. Strict Fitness Ltd. had the following transactions during 2021:
The company reported net income of $ 520,000 and comprehensive income of $ 592,000 for 2021.
Instructions
a) Record all of the transactions.
b) Prepare the Statement of Changes in Shareholders' Equity.
c) Calculate Strict Fitness' 2021 earnings per share. (Hint: weighted average number of common shares outstanding has been correctly computed at 208,167 shares)

Answer 2

c)
Cumulative dividend entitled by preferred shareholders = $ 5 x 6,500 = $ 32,500
Earnings available to common shareholders = $ 520,000 - $ 32,500 = $ 487,500
Weighted average number of common shares outstanding = 208,167
2021 EPS = $ 487,500 / 208,167 = $ 2.34 per share

Question 3

The following is information taken from the shareholders' equity section of the projected summary financial statements of Deer Fly Corp. to December 31, 2021, prior to the board of directors' meeting to decide on dividends or other share transactions related to its 10,000 issued common shares for the year. Instructions
Prepare in three-column comparative format, the shareholders' equity section as it would appear under each of the following possible options that the board is considering. Only one of the options will be chosen, so assume they are mutually exclusive. Describe any additional disclosure that would be required.
a) The board declares a 20% stock dividend.
b) The board approves a 3-for-1 stock split.

Answer 3

Additional disclosure in each case would include the number of shares authorized and issued. In the case of b) this would be the only change in the equity section from before the split.

Question 4

Lake Ltd. was incorporated July 1, 2020. The company is authorized to issue an unlimited number of preferred and common shares. The company entered into the following transactions during its fiscal year ending June 30, 2021:
Jul 10 Issued 100,000 common shares for $ 12.50 per share.
Jul 15 Issued 400,000 common shares for $ 13 per share.
Sep 30 Issued 30,000 common shares in return for a warehouse. The common shares were trading for $ 15.50 on the date the warehouse was acquired. The assessed value of the warehouse on that date was $ 450,600.
Mar 16 Issued 1,000 preferred shares for $ 95 per share.
May 10 Reacquired 65,000 common shares for $ 15 per share.
Instructions
Record the above transactions.

Question 5

Jenny OTB Corporation reports the following shareholders' equity as of December 31, 2021: Instructions
a) Assume the board of directors declares dividends totaling $ 1,500,000 to the shareholders. The preferred shares are cumulative, and no dividends were declared last year. Calculate the amount per share each class of shares will receive.
b) Assume the board of directors authorizes a 2-for-1 split on the common shares. Calculate the number of shares outstanding after the split and the average per share amount for both classes of shares.
c) Assume the board of directors authorizes a 10% stock dividend on the common shares after the stock split. The current selling price of the common shares is $ 11. Prepare the journal entry to record the declaration and distribution of the stock dividend.

Question 6

On January 1, 2020, Accounting For You Professional Corporation had $ 2,000,000 of common shares that were issued at $ 10 and retained earnings of $ 1,000,000. The corporation issued 100,000 common shares at $ 13 per share on July 1. On August 1, 2020, the company declared a $ 0.50 cash dividend to be paid on August 31, 2020 to shareholders of record on August 15, 2020. On December 15, the board of directors declared a 10% stock dividend to shareholders of record on December 31, 2020, payable on January 15, 2021. The market value of Accounting For You Professional Corporation shares was $ 15 per share on December 15 and $ 14 per share on December 31. Profit for 2020 was $ 500,000.
Instructions
a) Journalize the entries related to the above transactions.
b) Prepare the shareholders' equity section of the balance sheet for Accounting For You Professional Corporation at December 31, 2020.
c) Calculate the dividend payout ratio for 2020.

Question 7

Westcock Shipbuilding Ltd. has a December 31 year end. On January 1, 2021, the company had the following shareholder's equity accounts. Westcock Shipbuilding Ltd. had the following transactions during 2021:
The company reported a profit of $ 450,000 and other comprehensive income of $ 15,000 for 2021.
Instructions
a) Record all of the transactions.
b) Prepare the Statement of Changes in Shareholders' Equity.

Question 8

Cheers Corporation reported the following information related to the year ended July 31, 2021: Instructions
Prepare Cheer's statement of comprehensive income, statement of changes in shareholders' equity, and the shareholders' equity section of Cheer's balance sheet at July 31, 2021. Ignore tax effects.

Question 9

Moe Money

Question 10

Lee Holdings Ltd. was incorporated on January 2, 2021 and on that date issued 50,000 common shares for cash at $ 1 each. On April 30, Lee issued 1,000 preferred, $ 3 cumulative preferred shares, convertible to common shares at the rate of 6 common shares for one preferred share. The preferred shares were issued for $ 18 each. On October 15, 600 of the preferred shares were converted to common shares. On that date, the market value was $ 1.50 for the common shares and $ 17.50 for the preferred shares. On December 15, 10,000 common shares were reacquired for $ 0.90 each.
Instructions
a) Journalize the share transactions described.
b) Calculate the number of issued shares and average per share amount of each class remaining at the end of the year.

Question 11

Gabrial Ltd. was incorporated February 1, 2021 and is authorized to issue an unlimited number of preferred and common shares. The company entered into the following transactions during the year:
Feb 10 Issued 30,000 common shares for $ 2.30 per share.
Feb 21 Issued 4,000 common shares to the company's accountants as payment for a bill of $ 18,000 for services performed in helping the company to incorporate.
Mar 16 Issued 1,000 preferred shares for $ 95 per share.
Sep 10 Reacquired 3,000 common shares for $ 1.75 per share.
Instructions
Prepare the journal entries to record the above transactions.

Question 12

Sonoma Lakes Ltd. (SLL) has the following authorized share capital:
Unlimited Common voting shares
500,000 Class A, $ 5 cumulative preferred shares
500,000 Class B, $ 10 noncumulative preferred shares
During 2021, SLL had the following share transactions for cash:
Jan 1 Issued 50,000 common shares for $ 100,000.
Mar 12 Issued 1,000 Class A preferred shares for $ 60,000.
Apr 30 Issued 20,000 common shares for $ 2.50 per share.
Jun 20 Issued 3,000 Class B preferred shares for $ 70 per share.
Jul 2 Reacquired 10,000 common shares for $ 3 per share.
SLL did not declare any dividends during 2021. On December 31, 2022, a dividend of $ 3 per share was declared on preferred shares issued.
Instructions
a) Journalize the share transactions.
b) Calculate the number of common shares issued at December 31, 2021 and the average per share amount of common share.

Question 13

Harvey Hovercraft Inc. reported the following shareholders' equity:
Share capital: Instructions
a) The board of directors declared a 5% common stock dividend when the market price of the shares was $ 20 per share. Prepare the necessary journal entries to record the declaration and distribution of the common shares dividend.
b) What effect did the stock dividend have on:
i. total assets
ii. total liabilities
iii. total share capital
iv. total shareholders' equity

Question 14

Shockey Electric Ltd. has a December 31 year end. On January 1, 2021, the company had the following shareholder's equity accounts. Shockey Electric Ltd. had the following transactions during 2021:
The company reported income of $ 710,000, including other comprehensive income of $ 12,000 for 2021.
Instructions
a) Record all of the transactions.
b) Prepare the Statement of Changes in Shareholders' Equity.
c) Calculate Backwater's 2021 earnings per share.

Question 15

12345678 Ontario Ltd. which has authorized share capital of an unlimited number of common shares, and no other authorized classes of shares, had the following share transactions during 2021, its first year of operations: Instructions
Record the 2021 share transactions.

Question 16

On January 1, 2021, the following information appears in the records of Brown Holdings Inc.: During the year, the company had the following transactions:
Mar 31 Declared cash dividends on common shares of $ 0.50 per share; payable to shareholders of record on April 10, and payable on April 25.
Jun 30 Declared the entire annual dividend required on preferred shares; payable to shareholders of record on July 15, and payable on July 31.
Sep 15 Declared a 10% stock dividend to shareholders of record on October 5, and distributable on October 15.
All dividends were paid or distributed on the due date.
Market price of Brown's common shares at various dates was as follows: At December 31, 2021 the accounting records indicate that Brown's profit for 2021 was $ 350,000 and other comprehensive income, consisting of a gain on fair value adjustments on equity investments was $ 28,000.
Instructions
a) Journalize the dividend transactions.
b) Prepare the statement of changes in shareholders equity for the year ended December 31, 2021.
c) Prepare the shareholders' equity section of Brown's balance sheet at December 31, 2021.

Question 17

During its first year of operations, Millwoods Enterprises Inc. had the following transactions related to its common shares:
Jan 5 Issued 5,000 common shares to Michelle Vogel for $ 1 each.
Mar 15 Issued 10,000 common shares in exchange for equipment transferred from Vogel. The equipment was valued at $ 40,000.
Apr 10 Issued 3,500 shares to a consulting firm for management consulting services as settlement of a $ 14,000 invoice.
Sep 30 Issued 4,000 common shares to Renee Vogel for $ 5 each.
Instructions
a) Journalize the share transactions.
b) Calculate the average per share amount of the common shares of Millwoods Enterprises Inc. at December 31, 2021.

Question 18

Mana Inc. had the following balances in its shareholders' equity at the beginning of the current year (January 1, 2021):
Preferred shares ($ 1.50, cumulative*, 100,000 *two years of dividends are in arrears.
During the year ended December 31, 2021, the following transactions took place:
1. On January 1, issued 9,000 common shares at $ 18 per share.
2. On July 1, declared a 10% stock dividend on the common shares, market price $ 18.50 per share. The dividend is to be paid on August 15 to shareholders of record on July 31.
3. On August 15, the company paid the stock dividend.
4. On September 15, Ryder's board of directors declared a 4-for-1 stock split.
During the year, the company had a profit of $ 85,000.
Instructions
a) Prepare the journal entries to record the above transactions. Closing entries are not required.
b) Prepare a statement of changes in shareholders' equity for 2021.
c) Prepare the shareholders' equity section of the balance sheet at December 31, 2021.

Question 19

Brown Nose Corporation's shareholders' equity section at December 31, 2020 appears below:
Shareholders' equity On June 30, 2021, the board of directors of Brown Nose Corporation declared a 10% stock dividend, payable on July 31, 2021, to shareholders of record on July 15, 2021. The fair market value of Brown Nose Corporation's shares on June 30, 2021, was $ 12 per share.
On December 1, 2021, the board of directors declared a 2-for-1 stock split effective December 15, 2021. Brown Nose Corporation's shares were selling for $ 16 on December 1, 2021, before the stock split was declared. Profit for 2021 was $ 225,000 and there were no cash dividends declared.
Instructions
a) Prepare the journal entries on the appropriate dates to record the stock dividend and the stock split.
b) Fill in the amount that would appear in the shareholders' equity section for Brown Nose Corporation at December 31, 2021, for the following items:
1. Common shares $____________
2. Number of shares issued $____________
3. Retained earnings $____________
4. Total shareholders' equity $____________
a) Prepare the journal entries on the appropriate dates to record the stock dividend and the stock split.
b) Fill in the amount that would appear in the shareholders' equity section for Brown Nose Corporation at December 31, 2021, for the following items:

Question 20

The market price of Sanji's Paper Inc.'s common shares was $ 50 per share as quoted in today's Globe and Mail. Earnings per share were $ 5.
Instructions
Calculate the price earnings ratio for Sanji. If the price earnings ratio is high, what can the ratio mean?

Question 21

At January 1, 2021, Morrisey Corporation had the following share capital. At that time no preferred dividends were in arrears: On July 1, 2021, the board of directors declared and paid a $ 1.50 cash dividend on common shares, and the full annual dividend to which the preferred shareholders were entitled. On October 1, 2021, Morrisey sold an additional 80,000 common shares for proceeds of $ 280,000. The corporation earned $ 650,000 during the year.
Instructions
a) Calculate Morrisey's earnings per share for 2021.
b) Calculate Morrisey's total dividend payout ratio for 2021.

Question 22

Moreland Holdings Inc. has authorized share capital of an unlimited number of common shares and 1,000,000 preferred, $ 3-cumulative preferred shares. At January 1, 2021, the balances in its share capital accounts were $ 45,000 in common shares representing 15,000 shares and $ 30,000 in preferred shares representing 1,000 shares. The company had a balance of $ 50,000 in contributed surplus from previous years' repurchase of common shares. The retained earnings balance on that date was $ 180,000 and accumulated other comprehensive income was $ 62,000. Profit for the year ending December 31, 2021 was $ 24,000 and other comprehensive income items for the year were $ 5,000. There were no dividends in arrears at January 1, 2021 and no dividends were declared during 2021.
During 2021, Moreland had the following share transactions:
Mar 1 Issued 4,000 common shares for $ 5 each.
Jun 30 Issued 500 preferred shares for $ 11 each.
Sep 1 Issued 60,000 common shares in exchange for land valued at $ 285,000.
Dec 1 Reacquired 50,000 common shares for $ 5.25 each.
Instructions
a) Journalize the share transactions.
b) Prepare the equity section of Moreland's balance sheet at December 31, 2021 and describe any additional disclosure required related to share capital.

Question 23

The following information is taken from the trial balance of GlaxonSmith Supplies Ltd. at December 31, 2021, the company's year end. GlaxonSmith has a 25% tax rate. One of the entries making up the balance of retained earnings is an adjustment that was required due to the overstatement of prior year's depreciation expense by $ 1,600 which is net of tax effect. Instructions
Prepare the income statement and statement of retained earnings for GlaxonSmith for the year ended December 31, 2021 using the multiple-step format for the income statement.

Question 24

Saha Company had profit of $ 1,020,000 for the year ended December 31, 2021. At the beginning of the year, there were 300,000 common shares authorized, and 47,000 shares issued. In addition, during 2021, the company declared a dividend of $ 7 per share on its 10,000 preferred shares and issued 50,000 common shares on October 1.
Instructions
Calculate earnings per share for the year ended December 31, 2021.

Question 25

Groom Corporation had profit of $ 415,000 for the year ended December 31, 2021. On January 1, 2021, there were 90,000 common shares issued. Preferred dividends of $ 70,000 were declared and paid during 2021.
Instructions
Calculate the earnings per share for Groom Corporation for the year ended December 31, 2021.

Question 26

On January 1, 2021, Chu Corporation had retained earnings of $ 422,000. During the year, Chu had the following selected transactions:
1. Declared cash dividends of $ 100,000.
2. Suffered a loss of $ 70,000.
3. Corrected understatement of 2020 profit because of an inventory error $ 45,000. The company has a 30% income tax rate.
Instructions
Prepare a statement of retained earnings for the year.

Question 27

The following accounts appear in the ledger of Niagra Inc. after the books are closed at December 31, 2021: Instructions
Prepare the shareholders' equity section of the balance sheet at December 31, 2021.

Question 28

Hanley Corporation is preparing its year-end financial statements and needs your assistance evaluating the following items:
1. Management has decided to switch from FIFO inventory cost flow assumption to weighted average cost formula.
2. It was discovered during the year-end inventory count that the prior year inventory balance reported on the balance sheet incorrectly excluded a lot of inventory received in the warehouse while the year-end count was being performed.
3. Management decided to reduce the remaining useful life of its specialized equipment from 6 years to 4 years to reflect new information that suggests the equipment will be outdated earlier than originally expected.
4. Hanley began bidding on long-term contracts for the first time in the company's history. Management decided to use the percentage of completion method to account for these long-term contracts.
Instructions
a) Analyze each of the four events described above and identify the type of accounting change that has occurred.
b) Indicate whether each event above should be accounted for retrospectively or prospectively.

Question 29

Appier Corporation had the information listed below available in preparing an income statement for the year ended December 31, 2021. All amounts are before income taxes. Assume a 30% income tax rate for all items. Instructions
Prepare a multiple-step income statement in good form.

Question 30

The following information is available from the accounting records of DeWitt Engineering Ltd. for the year ended June 30, 2021: Instructions
Prepare a combined Statement of Income and Comprehensive Income for the year ended June 30, 2021. The company has a 30% income tax rate and records gains and losses on equity investments as other comprehensive income.

Question 31

For the year ended December 31, 2021, Chess Corporation reported the following information: Instructions
Prepare the statement of comprehensive income for the year ended December 31, 2021 starting with profit. The company records gains and losses on its equity investments as other comprehensive income and has a 25% income tax rate.

Question 32

Jasper Corporation is preparing its year-end financial statements and needs your assistance evaluating the following items:
1. When recording the current year depreciation expense, the controller noticed that depreciation expense recorded in the prior year did not consider the residual value into the calculation.
2. Management has decided to change the method used to depreciate the company's equipment from double-declining balance to straight-line method because of a change in the pattern of benefits received from the assets.
3. Management has changed the rate used to calculate the company's estimated warranty liability.
4. After defending a legal dispute relating to its patent, the company reduced the patent's amortization period.
Instructions
a) Analyze each of the four events described above and identify the type of accounting change that has occurred.
b) Indicate whether each event above should be accounted for retrospectively or prospectively.

Question 33

At July 1, 2020, Peters Corporation had the following share capital: *The preferred dividends are 2 years in arrears.
On January 1, 2021, the board of directors declared and paid a 15% common stock dividend when the market price of common shares was $ 23.50. On April 1, 2021, the company sold an additional 1,000,000 common shares for proceeds of $ 5,680,000. The corporation earned $ 722,000 during the year and paid $ 186,000 in dividends.
Instructions
a). Calculate Peters Corporation's earnings per share for the year ended June 30, 2021, assuming the company paid $ 186,000 in cash dividends.
b) Calculate Peters Corporation's earnings per share for the year ended June 30, 2021, assuming the company paid $ 186,000 in cash dividends but there were no preferred dividends in arrears.
c) Calculate Peters Corporation's earnings per share for the year ended June 30, 2021, assuming the preferred dividends are noncumulative and $ 50,000 in total cash dividends were paid during the year.

Question 34

Connolly Corporation had the following events during one fiscal year:
1. A stock dividend is declared on common shares.
2. The stock dividend is distributed.
3. Other comprehensive income for the year totals $ 350,000.
4. Cash dividends are declared.
5. The cash dividends are paid.
6. Profit for the year is $ 1,500,000.
7. Prior year's profit had to be corrected to record additional revenue that had been earned, but which had not yet been paid for by the customer. The additional revenue increases the amount of taxes payable on the prior year's income.
8. Repurchased common shares for an amount less than their average cost.
9. One third of the preferred shares are converted to common shares on a 1:10 ratio.
Instructions
Using the table provided, for each of the following financial statement categories, indicate the effect of the transaction as follows:
The category is increased +
The category is decreased -
There is no effect on the category NE

Question 35

The following information is available for Reynolds Corporation: The company accountant, in preparing financial statements for the year ending December 31, 2021, has discovered the following information:
The company's previous bookkeeper, who has been fired, had recorded depreciation expense on a machine in 2019 and 2020 using the double diminishing-balance method of depreciation. The bookkeeper neglected to use the straight-line method of depreciation which is the company's policy. The cumulative effect of the error on prior years was $ 9,000. Depreciation was calculated by the straight-line method in 2021. Reynolds' average tax rate is 22%. During 2021, Reynolds declared and paid cash dividends of $ 80,000.
Instructions
a) Calculate the impact on retained earnings.
b) Prepare the statement of retained earnings for 2021.

Question 36

At January 1, 2021, Stevenson Inc. had the following shares authorized and issued: On December 31, Stevenson declared a $ 9 per share dividend on all issued preferred shares. Stevenson's 2021 profit was $ 435,000.
Instructions
a) Calculate the weighted average number of common shares in 2021.
b) Calculate the profit available to common shareholders for 2021.
c) Calculate the 2021 earnings per share.

Question 37

On January 1, 2021, Grieve Grocers Inc.'s retained earnings account had a deficit (negative) balance of $ 75,000. During the year ended December 31, 2021, the company's second year of operations, Grieve had the following events that occurred in the sequence listed:
1. Declared and distributed a 10% stock dividend on common shares. Prior to the dividend, Grieve had 60,000 common shares issued with a total cost of $ 160,000, and the market value of the shares was $ 6.50 each.
2. Approved at two-for-one stock split.
3. Declared a cash dividend in the amount of $ 1 per share which is payable 15 days after the company's year end.
4. Profit for the year before taxes was $ 712,000.
5. Corrected the calculation of the prior year's cost of goods sold, which had been reported as $ 875,000 but which should have been $ 900,000, and adjusted the resulting tax savings.
6. Incurred an Other Comprehensive Loss of $ 174,500 (before income taxes).
Instructions
Prepare Grieve's statement of changes in shareholders' equity for the year ended December 31, 2021 assuming that Grieve has an income tax rate of 25%.

Question 38

During 2021, the following independent events occurred at Sarajavo Corporation on the dates indicated:
1. Sales were understated by $ 145,000 for 2020. This error was discovered on January 20, 2021, when trying to reconcile the accounts receivable balance.
2. On March 31, 2021, Sarajavo Corporation discovered that Depreciation Expense on factory equipment for the year ended December 31, 2020, had been recorded twice, for a total amount of $ 60,000 instead of the correct amount of $ 30,000.
3. On June 30, 2021, Sarajavo Corporation discovered that its 2020 cost of goods sold was overstated by $ 14,500 as a result in counting inventory.
Assume Sarajavo has a 20% income tax rate.
Instructions
Prepare any journal entries required as a result of the information provided.

Question 39

At December 31, 2021, Sookie Limited has $ 500,000 of $ 4, cumulative preferred shares issued at $ 100 per share and $ 3,000,000 of common shares issued at $ 10 per share. Sookie's profit for the year is $ 960,000.
Instructions
Calculate earnings per share for 2021 under the following independent situations. (Round to two decimals.)
a) The dividend to preferred shareholders was declared, and there has been no change in the number of common shares during the year.
b) The dividend to preferred shareholders was not declared. The preferred shares are cumulative.

Question 40

Ahab Fisheries Inc. has authorized share capital of an unlimited number of common shares and 300,000 $ 2-cumulative preferred shares.
As of January 1, 2021, 50,000 common shares had been issued at an average cost of $ 4 each. During 2021, 10,000 common shares were issued on April 1 for cash of $ 45,000 and on July 1, 20,000 were issued at $ 4.75 each. On December 15, a cash dividend of $ 0.50 per share on all common shares was declared, payable to shareholders of record on December 31, and payable on January 20, 2022.
On January 1, 2021, the first preferred shares were issued. $ 600,000 was received for 80,000 preferred shares. On October 1, the annual dividends on the preferred shares were declared, payable to shareholders of record on October 15, and payable on October 28.
Retained earnings on January 1, 2021 were $ 336,000 and accumulated other comprehensive income was $ 57,000. Ahab had profit of $ 323,000 in 2021, and other comprehensive income items totalling $ 37,500. All dividends were paid on their due dates. On December 31, 2021, Ahab's common shares were trading at $ 76.50.
Instructions
a) Calculate the profit available to common shareholders.
b) Calculate the weighted average number of common shares in 2021.
c) Calculate the earnings per share.
d) Calculate the price earnings ratio at December 31, 2021.

Question 41

The following information is available for a fictitious Canadian public corporation: Instructions
For each of the three years, calculate the earnings per share, the price earnings ratio, and the common share dividend payout ratio.