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The following shareholders' equity accounts are reported by Pharoah Inc. on January 1: Common shares (unlimited authorized,...



The following shareholders' equity accounts are reported by Pharoah Inc. on January 1: 

Common shares (unlimited authorized, 142,500 issued) $2,280,000 

Preferred shares ($4 cumulative, convertible, 100,000 authorized, 4,500 issued) 337,500 

Contributed surplus-reacquisition of common shares 29,000 

Retained earnings 1,255,000 

The following selected transactions occurred during the year: 

Feb. 11 Issued 47,500 common shares at $20 per share.

Mar. 2 Reacquired 19,000 common shares at $22 per share. 

June 14 Split the common shares 2 for 1 when the common shares were trading at $30 per share. 

July 25 Reacquired 330 preferred shares at $70 per share. 

Sept. 16 Reacquired 47,500 common shares for $17 per share. 

Oct. 27 Declared a 5% common stock dividend distributable on December 13 to shareholders of record on November 24. The fair value of the common shares on October 27 was $19 per share. Distributed the stock dividend declared on October 27. The fair value of the common shares on December 13 was $21 

Dec. 13 per share.

Solutions

Expert Solution

First of all, we have to record the journal entries

Requirement 1. Prepare journal entries for the transactions.

Date Account Titles and Explanation Debit Credit
Feb 11 Cash (47,500 * $20) $950,000
Common Stock $950,000
(Issued common shares for cash)
Mar 2 Common Shares (19,000 * $17) $323,000
Contributed Surplus - Reaquistion of Common shares (given) $29,000
Retained Earnings {418,000 - (323,000 + 29,000)} $66,000
Cash  (19,000 * $22) $418,000
(To record reacquistion of Common shares)
July 25 Preferred Shares (330 * $75) $24,750
Cash (330 * $70) $23,100
Contributed Surplus - Reaquistion of Common shares (24,750 - $23,100) $1,650
(337,500 / 4,500) = $75
(To record reacquistion of Preferred shares)   
Sep 16 Common Shares (47,500 * $8.5) $403,750
Retained Earnings $403,750
Cash (47,500 * $17) $807,500
(To record reacquistion of Common shares)
Oct 27 Stock Dividend (294,500 * 5% * $19) $279,775
Stock Dividend Distributable $279,775
(To record declaration of dividend)
Dec 13 Stock Dividend Distributable $279,775
Common Shares $279,775
(To record distribution of dividend)

Calculation of Cost of Common Shares

Date Number of Shares Total Cost Working Average Cost
Jan 1 142,500 $2,280,000 (2,280,000 / 142,500) $16
Feb 11 47,500 $950,000
Balance 190,000 $3,230,000 (3,230,000 / 190,000) $17
Mar 2 (19,000) ($323,000) $17
Balance 171,000 $2,907,000 (2,907,000 / 171,000) $17
June 14 171,000 (Split)
Balance 342,000 $2,907,000 (2,907,000 / 342,000) $8.5
Sep 16 (47,500) ($403,750) (403,750 / 47,500) $8.5
Balance 294,500 $2,503,250
Oct 27 14,725 $279,775 (294,500 * 5%) $19
Total 309,225 $2,783,025

Requirement 2. Show how each class of shares will be presented in the shareholders’ equity section of the balance sheet at December 31.

Amount

Shareholder's Equity

Share Capital:

Common Shares:

Authorized - Unlimited 309,225 shares issued

$2,783,025

Preferred Shares:

Authorized 100,000 , 4,170 shares issued

$312,750
(4,500 - 330) = 4,170

I hope I was able to help you. If you have any doubt, please feel free to comment me and if this helpful for you, please have THUMBS UP.

Thank you..


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