Question

Bramble Corp. reported the following amounts in the shareholders’ equity section of its December 31, 2016 statement of financial position:

Preferred shares, $7 dividend (8,000 shares authorized, 1,800 shares issued)		$198,000
Common shares (unlimited authorized, 20,000 issued)		480,000
Contributed surplus		41,700
Retained earnings		280,000
Accumulated other comprehensive income		70,000
Total		$1,069,700

During 2017, the company had the following transactions that affect shareholders’ equity.

1.		Paid the annual 2016 $7 per share dividend on preferred shares and a $4 per share dividend on common shares. These dividends had been declared on December 31, 2016.
2.		Purchased 4,100 shares of its own outstanding common shares for $30 per share and cancelled them.
3.		Issued 1,000 shares of preferred shares at $109 per share (at the beginning of the year).
4.		Declared a 20% stock dividend on the outstanding common shares when the shares were selling for $47 per share.
5.		Issued the stock dividend.
6.		Declared the annual 2017 $7 per share dividend on preferred shares and a $3 per share dividend on common shares. These dividends are payable in 2018.

The contributed surplus arose from net excess of proceeds over cost on a previous cancellation of common shares. Total assets at December 31, 2016, were $2,140,000, and total assets at December 31, 2017 were $2,616,000. The company follows IFRS.

a) Prepare journal entries to record the transactions above. (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.)

b) Prepare the statement of changes in shareholders’ equity for the year ended December 31, 2017. Assume 2017 net income was $470,000 and comprehensive income was $480,000. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

c) Prepare the December 31, 2017 shareholders’ equity section.

​d) Calculate the rate of return on common shareholders’ equity and the rate of return on total assets for 2017. (Round percentage answers to 2 decimal places, e.g. 52.75%.)

Answer 1

Part a:
Date	Particulars	Debit amount ($)	Credit amount ($)
	Preference Dividend	12600
	Bank		12600
	(Being preference dividend paid)
	Dividend	80000
	Bank		80000
	(Being dividend paid)
	Common shares	98400
	Retained earnings	24600
	Bank		123000
	(Being own shares purchased cancelled)
	Bank	109000
	Retained earnings	1000
	Preference shares		110000
	(Being preference shares issued)
	Retained earnings	149460
	Stock dividend		149460
	(Being stock dividend declared at 20%)
	Stock dividend	149460
	Common share capital		76320
	Retained earnings		73140
	(Being the stock dividend issued)
	Retained earnings	76840
	Proposed dividend		76840
	(Being dividend declared)

Part b:

Statement of changes in equity
	Amount ($)	Amount ($)
Total share holders' equity as on Decembber 31, 2016		1069700
Add:
New issue of common shares	186320
Retained earnings increase	73140
Net income	470000
Net comprehensive income	480000
		1209460
		2279160
Less:
Cancellation of shares	98400
Utilization of retained earnings	251900
		350300
Total share holders' equity as on December 31, 2017		1928860

Part c:

Stockholders' equity section
Preferred share, $7 dividend 2,800 shares issued	$      308,000.00
Common shares	$      457,920.00
contributed surplus	$        41,700.00
Retained earnings	$      571,240.00
Accumulated other comprehensive income	$      550,000.00
	$ 1,928,860.00

Part d:

Increase in retained earnings	$      291,240.00
Increase in other comprehensive income	480000
Dividend	57240
Total return	$      828,480.00
Common shareholders' equity at the beginning
common share	480000
contributed surplus	41700
Retained earnings at the beginning	280000
Accumulated other comprehensive income	70000
Common shareholders' equity at the beginning	871700
Rate of return	95.04%

Total assets at the beginning	1,069,700.00
Total assets at the end	1,928,860.00
Increase during the year	859,160.00
Rate of return	80.32%