Question

P14.4B:The following shareholders' equity accounts are reported by Talty Inc. on January 1:

Record stock dividends, splits, and reacquisition of shares. Show impact of transactions on accounts.

Common shares (unlimited authorized, 500,000 issued)	$4,000,000
Preferred shares ($9 noncumulative, convertible, 100,000 authorized, 4,000 issued)	600,000
Contributed surplus—reacquisition of common shares	2,000
Retained earnings	1,958,000

The following selected transactions occurred during the year:

Jan.	17	Issued 50,000 common shares at $10 per share.
Feb.	27	Reacquired 20,000 common shares at $12 per share.
Apr.	14	Split the common shares 2 for 1 when the common shares were trading at $20 per share.
June	25	Reacquired 500 preferred shares at $145 per share.
Aug.	16	Reacquired 100,000 common shares for $11 per share.
Oct.	17	Declared a 5% common stock dividend distributable on December 3 to shareholders of record on November 14. On October 17, the fair value of the common shares was $10.
Dec.	3	Distributed the stock dividend declared on October 17. On December 3, the fair value of the common shares was $12.50.

Instructions

a. Prepare journal entries for the transactions.

b. Show how each class of shares will be presented in the shareholders' equity section of the balance sheet at December 31.

Taking It Further  Provide possible reasons why Talty split the common shares and issued a stock dividend.

Answer 1

Calculations needed for parts (a) and (b)

Common Shares
	(1)	(2)	(3)
Date	No. of Shares	Total Cost	Average per Share Amount
Jan. 1,	500,000	$4,000,000	$8.00
Jan. 17	50,000	500,000
Sub.	550,000	4,500,000	8.18
Feb. 27	(20,000)	(163,600)	8.18
Sub.	530,000	4,336,400	8.18
Apr. 14	530,000
Sub.	1,060,000	4,336,400	4.09
Aug. 16	(100,000)	(409,000)
Sub.	960,000	3,927,400	4.09
Dec. 3	48,000	480,000
Bal.	1,008,000	4,407,400	4.37
Preferred Shares
	(1)	(2)	(3)
Date	No. of Shares	Total Cost	Average per Share Amount
Jan. 1,	4,000	$600,000	$150.00
June 25	(500)	(75,000)	150.00
Bal.	3,500	525,000	150.00

(a)  

Jan. 17   Cash............................................................................... 500,000

  Common Shares...............................................................     500,000

  (50,000 shares × $10)

Feb.   27 Common Shares (20,000 × $8.18)...............................   163,600

  Contributed Surplus—

  Reacquisition of Common Shares...............................   2,000

  Retained Earnings.......................................................   74,400

  Cash (20,000 × $12)...........................................   240,000

  June 25 Preferred Shares (500 × $150)....................................   75,000

  Contributed Surplus—

  Reacquisition of Preferred Shares......................   2,500

  Cash (500 × $145)..............................................   72,500

Aug. 16 Common Shares (100,000 × $4.09)...................................   409,000

  Retained Earnings.......................................................   691,000

  Cash (100,000 × $11).........................................   1,100,000

Oct.   17 Stock Dividends (48,000 × $10).................................   480,000

  Stock Dividends Distributable...........................   480,000

Dec. 3     Stock Dividends Distributable....................................   480,000

  Common Shares..................................................       480,000

(b)

  Share capital

  Preferred shares $9 noncumulative, convertible,

    100,000 authorized, 3,500 issued   $ 525,000

  Common shares, unlimited number of

    shares authorized, 1,008,000 issued   4,407,400