Question

ABC Inc, a Canadian retailer which operates more than 1,000 stores in Canada, reported the following balances as at December 31, 2019:

7% Par $100 convertible bonds, issued at par                                          $     250,000

      3,000 call options, each entitled to purchase 1 common share

Cumulative Preferred shares, 36,000 convertible shares outstanding      $     960,000

Common shares, 112,500 shares issued and outstanding                             2,880,000

Contributed surplus on repurchase of common shares                                      31,200

Retained earnings                                                                                         1,032,000

ABC Inc. applies IFRS. The company also informed you details related to the following transactions during 2020:

a]   On February 1, the company declared and distributed a 20% stock dividend for its common shareholders. The shares were being traded in the market at $30.

b]  On March 1, it acquired 18,000 of its own common shares in the market at $30.00 per share and retired them on the same day.

REQUIRED:

1. For transaction [a], Retained earnings decrease by:

1. $576,000
2. 675,000
3. 3,375,000
4. None of the above

2. For transaction [a], the journal entry is:

1. To debit common shares and credit retained earnings
2. To debit retained earnings and credit dividends payable
3. To debit retained earnings and credit common shares
4. None of the above

3. For transaction [b], common shares is decreased by

1. $474,000
2. 540,000
3. 460,800
4. None of the above

4. For transaction [b], retained earnings is decreased by

1. $66,000
2. 31,200
3. 540,000
4. 34,800

5. The journal entry to record transaction [b] is

1. Debit common shares, debit contributed capital, debit retained earnings and credit cash
2. Debit common shares, debit retained earnings and credit cash
3. Debit common shares, credit contributed capital, debit retained earnings and credit cash
4. Debit common shares, credit contributed capital, debit preferred shares, debit retained earnings and credit cash

Answer 1