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

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

Solutions

Expert Solution

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

ekkarill92 answered 1 year ago
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