Question

Ka-Pow Corporation's charter authorizes the issuance of 1 million common shares and 500,000 cumulative, participating preferred shares that have a dividend rate of $6 per share per year.

Ka-Pow’s limited ledger shows the following balances on December 31, 2019:

Preferred shares outstanding, 10,000 shares $1,200,000 Common shares outstanding, 20,000 shares 300,000 Retained earnings 2,000,000

The following transactions involving share issues were completed in 2020. Assume that Ka-Pow follows IFRS.

Jan 1: The board of directors declared a $163,000 dividend on both the 20,000 shares of outstanding common and the 10,000 shares of outstanding preferred.

Feb 1: The dividend was paid. Mar 1: Issued 4,000 common shares for machinery. The machinery had been appraised at a fair value of $72,000, and the seller's carrying amount was $58,600. The common shares' most recent market price is $18.50 a share.

Jun 1: Purchased 6,000 of its own outstanding common shares for $20 each and cancelled them.

Dec 15:Declared a 2-for-1 stock split on the outstanding common shares. The market price of the common shares was $24 at the time of the split.

Dec 31: The company reported/declared/calculated net income of $500,000 and comprehensive income of $530,000.

Instructions:

1. Prepare the journal entries to record the transactions from January 1 through to and including December 15. If no entry is needed for a particular date, write “n/a”.

2. On December 31, 2020,

a) What is the total number of common shares outstanding?

b) What is the total number of common shares authorized?

c) What is the balance in retained earnings at December 31, 2020?

Answer 1

1.

Date	Particulars	Debit	Credit
Jan 1st	Retained earnigs		163000
		Dividend payable		163000
	[Dividend declared]
Feb 1st	Dividend payable		163000
		Cash		163000
	[Dividend paid]
Mar 1st	Machinery		74000
		Common stock		60000
		APIC - C/S		14000
	[Machinery purchased by issue of stock]
Jun 1st	common stock		90000
	Reatined earnings		30000
		Cash		120000
	[Own shres boughtback cancelled]
Dec 15th	N/A

2.

Particulars	Number
Common	20000
Issued	4000
Shares bought back cancelled	-6000
Total	18000
Outstanding 2 for 1 stock split	36000

3.

Common stock authorized = 1,000,000 shares

4.

Balance at 31st Dec 2020
Particulars	$
R/E	$            2,000,000
Add Net income	$               500,000
Less Dividend	$               163,000
Less shares boughtback	$                  30,000
Closing balance	$            2,307,000

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