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Sarasota Limited has two classes of shares outstanding: preferred ($5 dividend) and common. At December 31,...

Sarasota Limited has two classes of shares outstanding: preferred ($5 dividend) and common. At December 31, 2019, the following accounts and balances were included in shareholders’ equity:

Preferred shares, 270,000 shares issued (authorized, 1,000,000 shares) $  2,900,000
Common shares, 900,000 shares (authorized, unlimited) 24,500,000
Contributed surplus—preferred 150,000
Contributed surplus—common 1,500,000
Retained earnings 5,000,000
Accumulated other comprehensive income 200,000


The contributed surplus accounts arose from net excess of proceeds over cost on previous cancellations of shares of each respective class. The following transactions affected shareholders’ equity during 2020:

Jan. 1 Issued 24,000 preferred shares at $24 per share.
Feb. 1 Issued 48,000 common shares at $19 per share.
June 1 Declared a 2-for-1 stock split (common shares).
July 1 Purchased and retired 27,000 common shares at $14 per share.
Dec. 31 Net income is $2,050,000; comprehensive income is $2,000,000.
Dec. 31 The preferred dividend is declared, and a common dividend of $0.45 per share is declared.


Assume that Sarasota follows IFRS.

1. Prepare the statement of changes in shareholders’ equity for the company at December 31, 2020. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round intermediate calculations to 2 decimal places, e.g. 52.75 and all other answers to 0 decimal places, e.g. 5,275.)

SARASOTA LIMITED
Statement of Changes in Shareholders' Equity

                                                                      For the Year Ended December 31, 2020December 31, 2020For the Month Ended December 31, 2020
Preferred Shares Common Shares Contrib.
Surplus – Preferred
Contrib.
Surplus – Common

Retained
Earnings
Acc. Other
Comprehensive
Income

Total
Number of
Shares
Share Capital Number of
Shares
Share Capital
Balance January 1, 2020 $ $ $ $ $ $ $
Issued preferred shares
Issued common shares
2-for-1 stock split   
Reacquired common shares   
Declared dividends – preferred
Declared dividends – common
Net income
Other comprehensive income
Balance December 31, 2020 $ $ $ $ $ $ $

2. Prepare the shareholders’ equity section of the SFP for the company at December 31, 2020.

3.Prepare the journal entry for the repurchase of 27,000 common shares on July 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 2 decimal places, e.g. 52.75 and all other answers to 0 decimal places, e.g. 5,275.)

4. Prepare the journal entry for the repurchase of 27,000 common shares assuming instead that the repurchase took place on May 31 at the same repurchase price of $14. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 2 decimal places, e.g. 52.75 and all other answers to 0 decimal places, e.g. 5,275.)

Solutions

Expert Solution

1.

No. of
Preferred shares
Prefrred stock
(10.74)
No. of
Common
shares
Common stock
(27.22)
Contributed surplus-
Preferred
Contributed surplus-
Common
Treasury
Stocks
Retained earnings Accumulated other comprehensive income
Balance Jan 1, 2020        270,000 $2,900,000       900,000 $24,500,000 $150,000 $1,500,000 $5,000,000 $200,000
Issued preferred shares          24,000 $257,778 $318,222.22
Issued common shares         48,000 $1,306,667 -$394,666.67
2 for 1 stock split       948,000
Reacquisition of common shares       (27,000) -$378,000 $378,000
Declared dividend - Preferred -$1,470,000
Declared dividend - Common -$841,050
Net income $2,050,000
Other comprehensive income $2,000,000
Balance Dec 31, 2020        294,000 $3,157,777.78 1,869,000 $25,428,666.67 $468,222.22 $1,105,333.33 $378,000.00 $4,738,950.00 $2,200,000.00

2.

Shareholder's Equity
Preferred stock $3,157,777.78
Common stock $25,428,666.67
Contributed surplus-
Preferred
$468,222.22
Contributed surplus-
Common
$1,105,333.33
(Treasury Stocks) -$378,000.00
Retained earnings $4,738,950.00
Accumulated other comprehensive income $2,200,000.00
$36,720,950.00

3.

Date Accounts and explanation Debit Credit
Jul-01 Common Stock $378,000.00
Treasury stock $378,000.00
(To record repurchase of shares)

4.

Date Accounts and explanation Debit Credit
May-31 Common Stock $378,000.00
Treasury stock $378,000.00
(To record repurchase of shares)

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