CHAPTER 13

INTRODUCTION TO CORPORATIONS

CHAPTER STUDY OBJECTIVES

1. Identify and discuss characteristics of the corporate form of organization. The major characteristics of a corporation are as follows: separate legal existence, limited liability of shareholders, transferable ownership rights, ability to acquire capital, continuous life, government regulations, and corporate income tax. Corporations must be incorporated federally or provincially, and may have shareholders of different classes. Each class of share carries different rights and privileges. The rights of common shareholders are restricted to the right to elect the board of directors, to receive a proportionate share of dividends, if declared, and to receive the remaining assets if the corporation is liquidated. Corporations are managed by the board of directors.

2. Explain share capital and demonstrate the accounting for the issuance of common and preferred shares. When shares are issued, the entire proceeds from the issue become legal capital and are credited to the Common Shares account. When shares are issued for noncash assets or services, the fair value of the consideration received is used if it can be determined. If not, the fair value of the consideration given up is used. The accounting for preferred shares is similar to the accounting for common shares.

Preferred shares typically do not have voting rights but do have priority over common shares to receive: 1. dividends, and 2. assets, if the company is liquidated. The dividend is specified and may be cumulative or noncumulative. Cumulative preferred shares must be paid dividends for the current year as well as any unpaid dividends from previous years before the common shares receive dividends. Noncumulative preferred shares lose the right to unpaid dividends from prior years. In addition, preferred shares may be convertible, redeemable, and/or retractable. Convertible preferred shares allow their holder to convert them into common shares at a specified ratio. Redeemable preferred shares give the corporation the right to redeem the shares for cash; retractable preferred shares give the shareholder the right to convert the shares to cash.

3. Prepare a corporate income statement. Corporate income statements are similar to the income statements for proprietorships and partnerships, with one exception. Income tax expense must be determined based on profit before tax and is reported on the income statement. Profit before tax less income tax expense is equal to profit for the year.

4. Explain and demonstrate the accounting for cash dividends. Dividends are similar to drawings in that they are a distribution of profit to the owners (shareholders). Entries for cash dividends are required at the declaration date and the payment date. Cash dividends reduce assets and shareholders’ equity (retained earnings). Preferred shareholders are paid their dividends first before the common shareholders are entitled to any dividends.

5. Prepare a statement of retained earnings and closing entries for a corporation. Retained earnings are increased by profit, and decreased by losses and dividends. Companies reporting under ASPE are required to prepare a statement of retained earnings showing the beginning balance, changes during the year, and ending balance of Retained Earnings. In a corporation, the Income Summary and dividends accounts are closed to Retained Earnings.

6. Prepare the shareholders’ equity section of the balance sheet and calculate return on equity. Within the shareholders’ equity section of the balance sheet, all corporations will report contributed capital and retained earnings. Within contributed capital, two classifications may be shown if applicable: 1. share capital and 2. contributed surplus. Corporations reporting under IFRS will also have another component in shareholders’ equity, which will be introduced in Chapter 14.

Return on equity is calculated by dividing profit by average shareholders’ equity. It is an important measure of a company’s profitability.

Exercises

Exercise 1

The following is a list of characteristics applicable to corporations:

1. Separate legal entity

2. Limited liability of shareholders

3. Transferable ownership rights

4. Ability to acquire capital

5. Continuous life

6. Government regulations

7. Potential for additional tax

8. Potential for deferred or reduced tax

Instructions

For each characteristic determine if it is an Advantage (A) or Disadvantage (D) to being incorporated.

Exercise 2

For each of the following statements, indicate whether the statement applies to a proprietorship, a partnership, a private corporation, or a public corporation.

(Select the most likely one by circling your choice).

Exercise 3

Pool Corporation is authorized to issue an unlimited number of common shares and 1,000,000 shares of preferred shares. During 2021, its first year of operation, the company had profit of 200,000. The following share transactions occurred:

Jan 1 Paid the province $ 2,000 for incorporation fees.

Jan 15 Issued 500,000 of $ 1 cumulative preferred shares at $ 7 per share.

Jan 30 Lawyers for the company accepted 500 common shares as payment for legal services provided in helping the company incorporate. The legal services are estimated to have a value of $ 5,000. The shares were actively trading at $ 10.50 per share.

Jul 2 Issued 100,000 common shares for land. The land had an asking price of $ 900,000. The shares are currently selling on a provincial exchange at $ 8 per share.

Instructions

a) Journalize the transactions for Pool Corporation.

b) Prepare the shareholders’ equity section of the balance sheet, Pool has a December 31 year-end.

Exercise 4

McGregor Corporation is authorized to issue an unlimited number of common shares and 500,000 shares of preferred shares. During 2021, its first year of operation, the company had profit of $ 305,000. The following share transactions occurred:

Jun 1 Paid the province $ 1,800 for incorporation fees.

Jun 5 Issued 100,000 of $ 4 cumulative preferred shares at $ 22 per share.

Jul 25 Lawyers for the company accepted 250 common shares as payment for legal services provided in helping the company incorporate. The legal services are estimated to have a value of $ 4,500. The shares were actively trading at $ 20 per share.

Oct 18 Issued 45,000 common shares for land. The land had an asking price of $ 850,000. The shares are currently selling on a Toronto Stock Exchange at $ 18 per share.

Instructions

a) Journalize the transactions for McGregor Corporation assuming the company follows IFRS.

b) Prepare the shareholders’ equity section of the balance sheet at December 31, 2021.

Exercise 5

The following selected transactions pertain to the RWE Corporation:

Jan 3 Issued 100,000 common shares for $ 25 cash per share.

Feb 10 Issued 6,000 common shares in exchange for special purpose equipment appraised at $ 159,000. RWE Corporation's common shares have been actively traded on the stock exchange at $ 27 per share.

Instructions

Journalize the transactions.

Exercise 6

On January 1, 2021, Wally Wholesale Ltd. has 25,000 common shared issued for a total of $ 62,500, and no other shares or contributed capital. During 2021, Wally had the following transactions:

Jan 15 Issued 15,000 common shares for $ 2.50 each.

Mar 31 Settled an account for legal expenses by issuing 2,500 shares. The value of the legal services was $ 5,000.

Sep 30 Issued 9,000 shares in exchange for equipment with a fair value of $ 22,500.

Instructions

a) Record the transactions.

b) Calculate the total number issued and average cost per share of the common shares at the end of 2021.

Exercise 7

The following selected transactions pertain to the Saturn Corporation:

Aug 20 Issued 20,000 common shares for $ 32 cash per share.

Nov 3 Issued 800 common shares in exchange for machinery required for the shop with an appraised value of $ 60,000. Saturn Corporation's common shares have been actively traded on the Toronto Stock Exchange at $ 78 per share.

Instructions

Journalize the transactions.

Exercise 8

During its first year of operations, Millwoods Enterprises Inc. had the following transactions related to its common shares:

Jan 5 Issued 5,000 common shares to Michelle Vogel for $ 1 each.

Mar 15 Issued 10,000 common shares in exchange for equipment transferred from Vogel. The equipment was valued at $ 40,000.

Apr 10 Issued 3,500 shares to a consulting firm for management consulting services as settlement of a $ 14,000 invoice.

Sep 30 Issued 4,000 common shares to Renee Vogel for $ 5 each.

Instructions

a) Journalize the share transactions.

b) Calculate the average cost of the common shares of Millwoods Enterprises Inc. at December 31.

Exercise 9

The following items were shown on the balance sheet of McKean Corporation on December 31, 2021:

Shareholders’ Equity

Share Capital

Common shares, no par value, unlimited number of shares

authorized; shares issued $ 1,200,000

$ 2 preferred shares, redeemable at $ 120, cumulative,

20,000 shares authorized, 6,000 shares issued 120,000

Total share capital 1,320,000

Retained Earnings 500,000

Total shareholders' equity $ 1,820,000

Instructions

Complete the following statements and show your calculations. All of the common shares were issued at $ 5 per share.

a) The number of common shares issued was ______.

b) The preferred shares dividend is $ ______ per share.

c) It would cost the company $ ______ to redeem 1,000 preferred shares.

d) The average issue price of the preferred shares was $ ______.

e) The total amount of cash and other assets paid to McKean Corporation in exchange for share capital, at December 31, 2021 was $ ______.

Exercise 10

Gabriellle Ltd. was incorporated February 1, 2021 and is authorized to issue an unlimited number of preferred and common shares. The company entered into the following transactions during the year:

Feb 10 Issued 30,000 common shares for $ 23 per share.

Feb 21 Issued 700 common shares to the company’s accountants as payment for a bill of $ 18,000 for services performed in helping the company to incorporate.

Mar 16 Issued 1,000 convertible preferred shares for $ 95 per share.

Sep 10 Issued 5,000 convertible preferred shares for $ 105 per share.

Oct 1 Converted 1,000 preferred shares into common shares. One preferred share is convertible into 10,000 common shares. The fair value of the common and preferred shares are $ 25 and $ 102 respectively.

Instructions

Prepare the journal entries to record the above transactions.

Exercise 11

Ashwill Ltd. was incorporated July 1, 2020. The company is authorized to issue an unlimited number of preferred and common shares. The company entered into the following transactions during its fiscal year ending June 30, 2021:

Jul 10 Issued 100,000 common shares for $ 12.50 per share.

Jul 15 Issued 400,000 common shares for $ 13 per share.

Sep 30 Issued 30,000 common shares in return for a warehouse. The common shares were trading for $ 15.50 on the date the warehouse was acquired. The assessed value of the warehouse on that date was $ 450,600.

Mar 16 Issued 1,000 preferred shares for $ 95 per share.

Instructions

Record the above transactions.

Exercise 12

Lee Holdings Ltd. was incorporated on January 2, 2021 and on that date issued 50,000 common shares for cash at $ 1 each. On April 30, Lee issued 1,000 preferred, $ 3 cumulative preferred shares, convertible to common shares at the rate of 6 common shares for one preferred share. The preferred shares were issued for $ 18 each. On October 15, 600 of the preferred shares were converted to common shares. On that date, the market value was $ 1.50 for the common shares and $ 17.50 for the preferred shares.

Instructions

Journalize the share transactions described.

Exercise 13

Sonoma Lakes Ltd. (SLL) has the following authorized share capital:

Unlimited Common voting shares

500,000 Class A, $ 5 cumulative preferred shares

500,000 Class B, $ 10 noncumulative preferred shares

During 2021, SLL had the following share transactions for cash:

Jan 1 Issued 50,000 common shares for $ 100,000.

Mar 12 Issued 1,000 Class A preferred shares for $ 60,000.

Apr 30 Issued 20,000 common shares for $ 2.50 per share.

Jun 20 Issued 3,000 Class B preferred shares for $ 70 per share.

SLL did not declare any dividends during 2021. On December 31, 2022 a dividend of $ 3 per share was declared on preferred shares issued.

Instructions

a) Journalize the share transactions.

b) Calculate the number of common shares issued at December 31, 2021.

c) Calculate the amount of the December 31, 2022 total dividend declared and the amount of dividends in arrears after declaring the December 31, 2022 dividend.

Exercise 14

Solo Corporation issued 1,000, no par value, convertible preferred shares at $ 100 per share. Each share is convertible into 10 common shares. When the market values of the two classes of shares are $ 101 and $ 13, respectively, 150 preferred shares are converted into common shares.

Instructions

a) Journalize the conversion of the 150 shares.

b) Repeat a) assuming that the market values at conversion are $ 103 and $ 20, respectively.

Exercise 15

Lea Corp. declared $ 35,000 in dividends in 2021. Share capital consists of 1,100 common shares and 3,700, $ 2 preferred shares. Dividends have not been paid on the preferred shares since 2018.

Instructions

Determine the dividends to be paid on preferred shares assuming:

a) the preferred shares are cumulative.

b) the preferred shares are noncumulative.

Exercise 16

Raven Corporation is authorized to issue 2,000,000, common shares. During its first three years of operation, Raven issued 1,200,000 shares at $ 15 per share. In 2021, Raven issued an additional 5,000 shares in return for equipment with a fair value of $ 75,000. The market price of the shares was $ 16 at the time of the sale.

Instructions

Based on the above information, answer the following questions:

a) How many shares are authorized at the end of 2021?

b) How many shares are issued at the end of 2021?

c) What is the value of the Common Shares account at the end of 2021?

Exercise 17

In its first year of operations, Snake Corporation had the following transactions relating to its convertible preferred shares and common shares. The preferred dividend rate is $ 2 per share.

Jan 1 Issued 10,000 common shares at $ 10 per share.

Feb 1 Issued 3,000 preferred shares for $ 41 per share.

Jul 1 Declared and paid annual preferred dividends.

Nov 1 Converted 1,000 preferred shares to common shares when the market value of the preferred shares was $ 42 and the market value of the common shares was $ 20. One share of preferred is convertible to 10 common shares.

Instructions

a) Journalize the transactions.

b) Indicate the amount to be reported for (1) preferred shares and (2) common shares at the end of the year.

Exercise 18

Solid Ltd. was incorporated on January 4, 2021 and is authorized to issue an unlimited number of common shares and an unlimited number of $ 5 noncumulative preferred shares. The company entered into the following transactions during the year:

Jan 6 Issued 9,000 common shares for $ 12 per share.

Jan 10 Issued 450 common shares to the company’s accountants as payment for a bill of $ 6,000 for services performed in helping the company to incorporate. The most recent value of Solid’s shares was on the issuance dated January 6.

Mar 22 Issued 400 convertible preferred shares for $ 52 per share.

May 1 Issued 1,000 convertible preferred shares for $ 68 per share.

Dec 12 Converted 500 preferred shares into common shares. One preferred share is convertible into 10 common shares. The fair value of the common and preferred shares are $ 26 and $ 72 respectively.

Instructions

Prepare the journal entries to record the above transactions.

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

b) Prepare a partial balance sheet for Solid Company at December 31, 2021 highlighting the shareholders’ equity section. Assume the company reported net income of $ 78,000 in its first year of operations.

Exercise 19

Bancroft Holdings Inc. has authorized share capital of an unlimited number of common shares and 1,000,000 preferred, $ 3-cumulative preferred shares. At January 1, 2021, the balances in its share capital accounts were $ 45,000 in common shares representing 15,000 shares and $ 30,000 in preferred shares representing 1,000 shares. The retained earnings balance on that date was $ 180,000. Profit for the year ending December 31, 2021 was $ 24,000. There were no dividends in arrears at January 1, 2021 and no dividends were declared during 2021.

During 2021, Bancroft had the following share transactions:

Mar 1 Issued 4,000 common shares for $ 5 each.

Jun 30 Issued 500 preferred shares for $ 11 each.

Sep 1 Issued 60,000 common shares in exchange for land valued at $ 285,000.

Instructions

a) Journalize the share transactions.

b) Prepare the equity section of Bancroft’s balance sheet at December 31, 2021 and describe any disclosure requirements related to share capital.

c) Calculate return on equity for 2021.

Exercise 20

RD Holdings Ltd. which has authorized share capital of an unlimited number of common shares, and 1,000,000 preferred shares, had the following share transactions during 2021, its first year of operations:

Jan 2 Issued 30,000 common shares at $ 0.10 each.

Jan 5 Issued 50,000 common shares to Roy Daines in exchange for management services valued at $ 5,000.

Jan. 31 Issued 1,000,000 common shares to Rachel Daines in exchange for merchandise inventory valued at $ 15,000, land valued at $ 30,000 and a building valued at $ 55,000.

Mar 31 Issued 60,000 to Gilmore Law Firm in exchange for legal services. It is assumed that the market price of RD Holdings’ shares is unchanged since January 2.

Dec 1 Issued 20,000 of $ 2 preferred shares for $ 20 per share.

Instructions

a) Record the 2021 share transactions.

b) Prepare the share capital section of RD Holdings' balance sheet at December 31, 2021.

Exercise 21

Duke Inc. was incorporated on July 1, 2021 with authorized share capital of 1,000,000 common shares and 500,000 preferred $ 4 cumulative preferred shares, convertible to common shares at a rate of 10 common shares for each preferred share. During its first year of operations, Duke had profit of $ 126,000, and declared no dividends. Duke had the following transactions related to share capital during the year:

Jul 1 2021 Issued 100,000 common shares for $ 2 each.

Jul 1 2021 Issued 5,000 preferred shares for $ 75 each.

Aug 15 2021 Issued 10,000 common shares for legal services received, valued at $ 25,000.

Dec 1 2021 Issued 5,000 common shares at $ 2.25 each in exchange for equipment received.

Mar 8 2022 Half of the preferred shares were converted to common shares. On this date, the market value of the common shares was $ 3.10 and the preferred share value was $ 80.

Instructions

a) Prepare the entries to record the share transactions described above.

b) Prepare the shareholder equity section of Duke’s balance sheet at June 30, 2022, the date of its first year end.

c) Calculate the return on equity for the first year of operations. Use the July 1, 2021 share capital as the beginning balance for the purpose of calculating average shareholder equity.

Exercise 22

The following information is available from the accounting records of DeWitt Engineering Ltd. for the year ended June 30, 2021:

Fee discounts and allowances $ 26,000

Fee revenue 1,560,000

Interest revenue 6,000

Other operating expenses 590,000

Salaries expense 750,000

Instructions

Prepare a corporate income statement for the year ended June 30, 2021. The company has a 30% income tax rate.

Exercise 23

At December 31, 2021, Kiss Corporation reports revenue of $ 5,750,000 and expenses of $ 3,920,000. The company has a tax rate of 27%. During the year, the company declared and paid dividends of $ 650,000.

Instructions

Prepare an income statement and record the adjustment to income taxes assuming no taxes have yet been accrued.

Exercise 24

For the year ended August 31, 2021, Zen Fitness Inc. had service revenue of $ 625,000; operating expenses of $ 265,000 and other expenses of $ 32,000. The company has a 20% tax rate and has previously accrued $ 25,000 in income taxes.

Instructions

a) Determine the income tax expense.

b) Prepare an income statement.

c) Prepare the entry to record the income taxes.

Exercise 25

Below is a list of income statement accounts for Nepal Inc. as of December 31, 2021:

Revenue $ 5,960,000

Income tax Expense 875,625

Income tax payable 750,000

Profit 2,626,875

Other expenses 97,500

Salaries Expense 850,000

Supplies Expense 410,000

Interest Expense 1,100,000

Instructions

a) Present the income statement in the correct order.

b) What is the applicable tax rate for Nepal Inc.?

Exercise 26

Sawyer Corporation, a private company reporting under ASPE has the following information available with respect to the company’s operations until December 31, 2021:

1. Collected $ 345,000 cash for service revenue earned.

2. Paid $ 125,000 salaries expense, $ 56,000 rent expense, and $ 5,000 insurance expense.

3. Purchased a new vehicle for $ 35,000 cash on January 1, 2021. This vehicle will be depreciated over 5 years with no salvage value.

4. Accrued $ 16,000 for income taxes during 2021.

5. On December 31. 2021 the following adjustments were completed:

Service revenue earned but not yet collected in cash $ 22,500

Accrued Interest expense $ 4,500

Accrued Salaries expense $ 7,200

Mayer has a 20% income tax rate.

Instructions

Prepare an income statement and record the adjustment to income taxes.

Exercise 27

The trial balance of Terris Inc. for the year ended September 30, 2021, prior to recording of tax expenses, but after all other adjustments, is as follows. All accounts are their normal balance (debit or credit). Terris has a tax rate of 30%.

Accounts payable $ 80,000

Accounts receivable 40,000

Cash 50,000

Cash dividends 7,000

Common shares 30,000

Cost of goods sold 175,000

Dividends payable 4,000

Interest expense 4,500

Inventory 120,000

Operating expenses 92,300

Preferred shares 25,000

Retained earnings, beginning balance 11,900

Sales revenue 320,000

Taxes payable 100

Instructions

Prepare the income statement and statement of retained earnings for Terris Inc. for the year ended September 30, 2021.

Exercise 28

The following information is taken from the trial balance of GlaxonSmith Supplies Ltd. at December 31, 2021, the company’s year end. GlaxonSmith has a 15% tax rate.

Cash dividends $ 7,500

Common shares 9,000

Cost of goods sold 65,000

Dividends payable 2,500

Interest revenue 300

Operating expenses 16,900

Preferred shares 10,000

Retained earnings, beginning balance 3,100

Sales revenue 90,000

Instructions

Prepare the income statement and statement of retained earnings for GlaxonSmith for the year ended December 31, 2021.

Exercise 29

Checkered Rides Inc. has a March 31, 2021 fiscal year end and a 35% income tax rate. The following information is available for its 2021 year end:

1. Performed $ 880,000 service revenue and paid $ 325,000 in salaries. Interest expense was $ 12,600.

2. Paid dividends in December 2020 of $ 14,000 that had been declared in November 2020.

3. On March 10, 2021 declared dividends of $ 19,000 payable April 30, 2021.

4. Recorded and remitted taxes of $ 140,000 (related to 2021 fiscal year) during the year.

5. Issued common shares for $ 15,000 on January 31, 2021.

6. Retained earnings balance on April 1, 2020 is $ 67,000.

Instructions

a) Prepare an income statement and record the adjustment to income tax.

b) Prepare a statement of retained earnings.

Exercise 30

Maki and Leduc Inc. has recorded all necessary adjusting entries, except for income tax expense, at its fiscal year end August 31, 2021. The following information has been taken from the adjusted trial balance:

Cash 119,000

Inventory 122,000

Sales 960,000

Interest Expense 35,000

Notes Payable 126,000

Unearned Revenue 33,000

Retained Earnings (September 1, 2020) 6,325

Salaries Expense 110,000

Supplies Expense 25,000

Accounts Payable 45,000

Income tax Payable 6,175

Common shares 91,000

Accounts receivable 122,000

Cost of goods sold 722,000

Insurance expenses 12,500 ________

$ 1,267,500 $ 1,267,500

Maki and Leduc Inc. has a 15% tax rate.

Instructions

a) Prepare a multi-step income statement and the required journal entry to adjust income tax expense.

b) Prepare a statement of retained earnings.

c) Prepare closing entries.

Exercise 31

Austrian Limited is a private corporation reporting under ASPE. At December 31, 2021, its general ledger contained the following summary data:

Sales $ 1,200,000

Interest expense 16,000

Operating expenses 275,000

Cost of goods sold 625,000

Retained earnings January 1, 2021 497,000

Additional information:

1. In 2021 dividends of $ 35,000 were declared on July 1 and December 31 respectively. The dividends were paid on August 10, 2021 and January 15, 2022 respectively.

2. The company’s tax rate is 33%.

Instructions

a) Determine the income tax expense and prepare a multi-step income statement for 2021.

b) Prepare a statement of retained earnings for 2021.

Exercise 32

Jogger Inc. is a private corporation reporting under ASPE. At December 31, 2021, its adjusted trial balance contained the following summary data:

Sales $ 2,200,000

Interest expense 120,000

Operating expenses 660,000

Cost of goods sold 1,025,000

Retained earnings January 1, 2021 922,000

Additional information:

1. In 2021 dividends of $ 30,000 were declared on March 31, June 30, September 30 and December 31 respectively. The dividends were paid on April 9, 2021, July 10, 2021, October 4, 2021 and January 12, 2022 respectively.

2. The company’s tax rate is 25%.

Instructions

a) Determine the income tax expense and prepare a multi-step income statement for 2021.

b) Prepare a statement of retained earnings for 2021.

Exercise 33

KBR Investments Inc. has issued 90,000 Class A $ 3 cumulative preferred shares and 45,000 Class B $ 5 noncumulative preferred shares. At the end of 2019, there were no dividends in arrears. During 2020, KBR paid dividends of $ 100,000 to its Class A shareholders. In January of 2021, KBR paid dividends of $ 120,000 to its Class A shareholders. On December 31, 2021, KBR declared dividends in an amount sufficient to pay out all of the remaining dividends in arrears plus the entire current year obligation including dividends on Class B shares, so that they can pay dividends on common shares.

Instructions

Calculate the dividends declared for Class A and for Class B shareholders on December 31, 2021.

Exercise 34

Trainor Corporation was organized on January 1, 2020. During its first year, the corporation issued 20,000 preferred shares with a $ 0.30 dividend entitlement and 200,000 common shares, both at $ 1 per share. At December 31, the corporation’s year end, Trainor declared the following cash dividends:

Preferred shares Common Shares

2020 $ 0.25 per share $ 0.00

2021 as required by terms $ 0.05 per share

2022 as required by terms $ 0.15 per share

Instructions

a) Calculate the total dividends and the amount paid to each class of shares, assuming the preferred dividend is not cumulative.

b) Calculate the total dividends and the amount paid to each class of shares, assuming the preferred dividend is cumulative.

c) Journalize the declaration of the cash dividend at December 31, 2022 using the assumption of part b).

Exercise 35

Umbrello Plastics Limited reports the following shareholders' equity as of December 31, 2021:

Preferred shares, $ 5.00, cumulative, 250,000 shares authorized,

80,000 shares issued $ 2,400,000

Common shares, unlimited shares authorized,

216,000 shares issued 1,050,000

Retained earnings 6,400,000

Total shareholders’ equity $ 9,850,000

Instructions

1. What was the average per share amount for common shares? (round to two decimal places)
2. What was the average per share amount for preferred share? (round to two decimal places)
3. Assume no dividends were declared last year and the board of directors declares $ 1,600,000 in total dividends in 2021. Calculate the amount per share each class of shares will receive. (round to two decimal places)

Exercise 36

Sandex Corporation's balance sheet reported the following shareholders' equity as of December 31, 2021:

Shareholders’ Equity

Share capital:

Preferred shares, $ 5 cumulative, 20,000 shares

authorized, 8,000 issued, redemption value

$ 85 per share $ 770,000

Common shares unlimited shares authorized,

150,000 shares issued 1,150,000

Total share capital $ 1,920,000

Retained earnings 450,000

Total shareholders' equity $ 2,370,000

Additional information:

There is one year of dividends in arrears on the preferred shares. Sandex declared a total cash dividend of $ 100,000 on December 31, 2021.

Instructions

1. Determine the dividend allocation between common and preferred shares and record the declaration of the dividend.
2. Calculate the average per share amount for common shares (round to two decimal places).

Exercise 37

On January 1, 2021, Hobbs Corporation had 60,000 common shares issued at $ 1 per share. During the year, the following transactions occurred:

Mar 1 Issued 40,000 common shares for $ 600,000.

Jun 1 Declared a cash dividend of $ 2 per share to shareholders of record on June 15.

Jun 30 Paid the $ 2 cash dividend.

Profit for 2021 amounted to $ 651,000.

Instructions

Prepare journal entries to record the above transactions including any appropriate closing entries.

Exercise 38

The shareholders' equity section of Yessir Corporation at December 31, 2020 included the following:

$ 6 preferred shares, cumulative,

10,000 shares authorized, 8,000 shares issued $ 800,000

Common shares, 250,000 shares authorized,

200,000 shares issued $ 2,000,000

Dividends were not declared on the preferred shares in 2020 and are in arrears.

On September 15, 2021, the board of directors of Yessir Corporation declared dividends on the preferred shares for 2020 and 2021, to shareholders of record on October 1, 2021, payable on October 15, 2021.

On November 1, 2021, the board of directors declared a $ 2 per share dividend on the common shares, payable November 30, 2021, to shareholders of record on November 15, 2021.

Instructions

Prepare the journal entries that should be made by Yessir Corporation in 2021 on the dates indicated below:

September 15 November 1

October 1 November 15

October 15 November 30

Exercise 39

On January 1, 2021, Urban Faith Limited had 200,000 common shares issued at an average cost of $ 25 per share. During the year, the following transactions occurred:

May 1 Issued 20,000 common shares for $ 470,000.

Jun 1 Declared a cash dividend of $ 3.50 per share to shareholders of record on June 15.

Jun 25 Issued 10,000 common shares for $ 260,000.

Jun 30 Paid the cash dividend declared on June 1.

Profit for 2021 amounted to $ 885,000.

Instructions

Prepare journal entries to record the above transactions assuming Urban Faith has a December 31 year end. Be sure to prepare the appropriate closing entries at December 31, 2021.

Exercise 40

At December 31, 2021, Cabot Corporation reports revenue of $ 3,500,000 and expenses of $ 2,300,000. During the year, the company declared and paid dividends of $ 400,000. The company had $ 1,500,000 in retained earnings at the beginning of 2021.

Instructions

a) Prepare the closing entries for 2021.

b) Prepare a statement of retained earnings for December 31, 2021.

Exercise 41

Burbon Ltd. is a private company reporting under ASPE. The adjusted trial balance at its fiscal year end, December 31, 2021, is shown below:

BURBON LTD.

Adjusted Trial Balance

December 31, 2021

Debit Credit

Cash $ 25,000

Accounts Receivable 16,000

Inventory 333,000

Prepaid Expenses 24,000

Supplies 1,600

Equipment 37,500

Accounts Payable $ 36,000

Income tax payable 72,000

Unearned Revenue 86,000

Common shares (56,000 issued) 56,000

Retained Earnings (January 1, 2021) 19,900

Dividends 5,600

Sales 772,000

Cost of goods sold 445,000

Depreciation expense 7500

Interest expense 1,000

Wages expense 72,000

Insurance expense 1,100

Income tax expense 57,600

Rent expense 15,000

$ 1,041,900 $ 1,041,900

Instructions

a) Prepare a statement of retained earnings.

b) Journalize the closing entries.

Exercise 42

The adjusted trial balance for Jurassic Furniture Inc. at December 31, 2021 is as follows:

Jurassic Furniture Inc.

Adjusted Trial Balance

For the Year Ended December 31, 2021

Debit Credit

Cash $ 21,400

Accounts receivable 1,500

Prepaid insurance 2,000

Prepaid rent 3,000

Supplies 3,330

Equipment 17,500

Accumulated depreciation-equipment $ 5,200

Furniture 25,000

Accumulated depreciation-furniture 4,250

Accounts payable 8,400

Salary payable 2,200

Income taxes payable 2,000

Unearned revenue 6,700

Dividends – Common shares 10,000

Dividends – Preferred shares 5,000

Retained earnings 52,567

Sales revenue 37,500

Salary expense 14,387

Depreciation expense 4,500

Rent expense 5,500

Insurance expense 2,200

Income tax expense 2,000

Supplies expense 700

Advertising expense 800 _______

$ 118,817 $ 118,817

Instructions

1. Prepare the closing journal entries for Jurassic Furniture Inc. at December 31, 2021.
2. Prepare a post-closing trial balance.

Exercise 43

Byrne Corporation had the following accounts at January 1, 2021:

common shares, unlimited number of shares authorized, 7,000 shares issued $ 197,000

preferred shares, $ 9.50 cumulative, unlimited number of shares authorized,

2,000 shares issued $ 63,500

retained earnings $ 263,000

During the year, the company paid the preferred dividend and paid a $ 1.50 dividend to the common shareholders. The company had profit of $ 333,000.

Instructions

Prepare the shareholders’ equity section of the balance sheet at December 31, 2021.

Exercise 44

Nicco Corporation had the following accounts at January 1, 2021:

common shares, unlimited number of shares authorized, 18,000 shares issued $ 180,000

preferred shares, $ 4 cumulative, unlimited number of shares authorized,

1,000 shares issued $ 50,000

retained earnings $ 223,000

The company has profit of $ 79,000 in 2021 and paid $ 85,000 in dividends.

Instructions

a) Calculate the return on equity at December 31, 2021.

b) What does this ratio tell you about the corporation?

Exercise 45

Cordoza Corporation had profit of $ 400,000 in 2021. Total shareholders’ equity was $ 1,400,000 at December 31, 2019; $ 1,500,000 at December 31, 2020; and $ 1,600,000 at December 31, 2021.

Instructions

Calculate return on equity for 2021 and explain what it means.