Question

Wilma Corporation reported the following amounts in its shareholders’ equity section on the December 31, 2014 balance sheet:

Preferred shares, $5 dividend, 10,000 shares authorized,                           $180,000

            2,500 shares issued                                                                          

Common shares, 100,000 authorized, 25,000 issued                                   100,000

Contributed Surplus^[1]                                                                                      122,000

Retained Earnings                                                                                          238,000

Accumulated Other Comprehensive Income                                                    50,000

           

Total Shareholders’ Equity                                                                             $690,000

During 2015, the following transactions impacted shareholders’ equity:

       a) Jan 15: Purchased 6,000 shares of its own common shares for $26 per share and retired them

1. Feb 1: Issued 1,500 preferred shares at $75 per share
2. Nov 1: Declared a 10% stock dividend on the outstanding common shares when they were trading at $31 per share.               
3. Dec 31: Declared the annual 2015, $5 per share preferred share dividend and a $3 per share dividend on the common shares. These dividends are payable in 2016.

Required:

a) Prepare journal entries for each of the transactions in 2015     

b)   Assume 2015 net income was $280,000, and Total Comprehensive Income was $290,000, prepare the Shareholder’s Equity section of the Balance Sheet at December 31, 2015

[1] Contributed surplus arose from common share transactions

Answer 1

Wilma Corporation reported the following amounts in its shareholders’ equity section on the

December 31, 2014 balance sheet:

Preferred shares, $5 dividend, 10,000 shares authorized, 2500 shares issued …………………………………………………………………….. $180,000

Common shares, 100,000 authorized, 25,000 issued …………………100,000

Contributed Surplus[1] …………………………………………………….122,000

Retained Earnings ……………………………………………………… 238,000

Accumulated Other Comprehensive Income……………………………..50,000

           .

Total Shareholders’ Equity ………………………………………………$690,000

.

During 2015, the following transactions impacted shareholders’ equity:

       a) Jan 15: Purchased 6,000 shares of its own common shares for $26 per share and retired them

a. Feb 1: Issued 1,500 preferred shares at $75 per share

b. Nov 1: Declared a 10% stock dividend on the outstanding common shares when they were trading at $31 per share.               

c. Dec 31: Declared the annual 2015, $5 per share preferred share dividend and a $3 per share dividend on the common shares. These dividends are payable in 2016.

.

Required:

a) Prepare journal entries for each of the transactions in 2015

.

Date	Accounts and explanation	Debit	Credit
2015, Jan 15	Treasury stock	$156000
	..Cash		$156000
	( Purchased 6,000 shares of its own common shares for $26 per share)
Jan 15	Common stock (4*6000)	$24000
	Contributed Surplus( 4.88*6000)*	29280
	Retained earning	102720
	..Treasury stock		$156000
	(treasury stock retired)
Feb 1	Cash	$112500
	Preferred share (72*1500)		108000
	Contributed capital (75-72) * 15000		4500
	(Issued 1,500 preferred shares at $75 per share)
NOV 1	Retained earning (31 * 1900)	58900
	Common shares (4 * 1900)		7600
	Contributed capital (31-4)*1900		51300
	(Declared a 10% stock dividend on the outstanding common shares when they were trading at $31 per share)
Dec 31	Retained earning	82700
	Dividend payable - preferred stock (5 * 4000)		20000
	Dividend payable - common stock (3* (19000+1900)		62700
	(Declared dividend)

.

*contributed capital associated with 6000 shares is = 122000 / 25000 * 6000 = 4.88*6000 = 29280, so remaining are retired from retained earning

*now outstanding share = 25000 - 6000 = 19000

Stock dividend = 19000 * 10% = 1900 share at market value = 31

.

b)    Assume 2015 net income was $280,000, and Total Comprehensive Income was $290,000, prepare the Shareholder’s Equity section of the Balance Sheet at December 31, 2015

.

Shareholder’s Equity section of the Balance Sheet at December 31, 2015	.
Preferred shares, $5 dividend, 10,000 shares authorized, 4000 (2500+1500) shares issued	$288000
common shares, 100,000 authorized, 20,900 issued	83600
Contributed Surplus	148520
Retained Earnings	376400
Accumulated Other Comprehensive Income	60000
Total Shareholders’ Equity	$956520

.

*Preferred shares, $5 dividend, 10,000 shares authorized, 4000 (2500+1500) shares issued = 4000 * 72 = 288000

*common shares, 100,000 authorized, 20900 (25000-6000+19000) issued = 4 * 20900 = 83600

*Contributed Surplus = 122000 - 29280 + 4500 +51300 = 148520

*Retained Earnings = opening + net income during - dividend declared

= 238000 + 280000 - (58900 + 82700) = 376400

*Accumulated Other Comprehensive Income = 50000 + 10000 = 60000