CHAPTER 14

Corporations: ADDITIONAL TOPICS AND IFRS

Summary of Questions by STUDY Objectives
and Bloom’s Taxonomy

Note: AN = Analysis AP = Application

Summary of Questions by Level of difficulty (LOD)

Note: E = Easy M = Medium H=Hard

CHAPTER STUDY OBJECTIVES

1. Account for stock dividends and stock splits and compare their financial impact. Entries for stock dividends are required at the declaration and distribution dates. There is no entry for a stock split. Stock dividends reduce retained earnings and increase common shares, but have no impact on total shareholders’ equity. Both stock dividends and stock splits increase the number of shares issued. Stock splits reduce the fair value of the shares, but have no impact on the company’s financial position.

2. Account for the reacquisition of shares. When shares are reacquired, the average cost is debited to the Common Shares account. If the shares are reacquired at a price below the average cost, the difference is credited to a contributed surplus account. If the shares are reacquired at a price above the average cost, the difference is debited first to a contributed surplus account if a balance exists, and then to the Retained Earnings account.

3. Prepare an income statement showing continuing and discontinued operations, and prepare a statement of comprehensive income. Gains or losses on discontinued operations must be presented net of income tax after profit (or loss) from continuing operations. Companies following IFRS must prepare a statement of comprehensive income that reports all increases and decreases to shareholders’ equity during a period except changes resulting from the sale or repurchase of shares and from the payment of dividends. The statement of comprehensive income can be prepared on an all-inclusive basis, or can start with profit or loss as shown on a separate income statement.

4. Explain the accounting for different types of accounting changes and account for corrections of prior period errors. A change in accounting policy, from the method used in the previous year, is allowed only when there is a change in GAAP or if it results in the financial statements providing more reliable and relevant information. These changes are applied retroactively when possible. A change in an accounting estimate is not an error and only the current and future periods are revised. If an error in a prior year’s profit and retained earnings is found after the temporary accounts have been closed and the statements have been issued, then beginning retained earnings is adjusted. This is shown in the financial statements as a correction to beginning retained earnings net of the related income tax impact.

5. Prepare a statement of changes in shareholders’ equity. A statement of changes in shareholders’ equity explains all of the changes in each of the shareholders’ equity accounts, and in total, for the reporting period. This includes changes in contributed capital (common shares, preferred shares, and any other contributed surplus accounts), retained earnings, and accumulated other comprehensive income. The statement is required for companies reporting under IFRS.

6. Evaluate earnings and dividend performance. Profitability measures that are used to analyze shareholders’ equity include return on equity (discussed in Chapter 13), earnings per share, the price-earnings ratio, and the payout ratio. Earnings (loss) per share is calculated by dividing profit (loss) available to the common shareholders by the weighted average number of common shares and is reported only under IFRS. The price-earnings ratio is calculated by dividing the market price per share by the earnings per share. The payout ratio is calculated by dividing cash dividends by profit.

EXERCISES

Exercise 1

The following is information taken from the shareholders’ equity section of the projected summary financial statements of Blair Bonds Corp. to December 31, 2014, prior to the board of directors’ meeting to decide on dividends or other share transactions related to its 10,000 issued common shares for the year.

Total assets $ 560,000

Total liabilities $ 320,000

Shareholders' equity

Common shares 30,000

Retained earnings 210,000

Total shareholders' equity 240,000

Total liabilities and shareholders' equity $ 560,000

Common shares market value $12.50

Instructions

Prepare in four-column comparative format, the shareholders’ equity section as it would appear under each of the following possible options that the board is considering. Only one of the options will be chosen, so assume they are mutually exclusive. Describe any additional disclosure that would be required.

a. The board declares a 20% stock dividend.

b. The board approves a 3-for-1 stock split.

Exercise 2

During 2014, Quest Corporation had the following transactions and events:

1. Issued preferred shares for cash.

2. Issued common shares for cash.

3. Completed a 2-for-1 stock split of the common shares.

4. Declared a stock dividend when the market value was higher than the issue price.

5. Declared a cash dividend.

6. Issued the common shares required by the stock dividend declaration in 4 above.

Instructions

Indicate the effect(s) of each of the foregoing items on the subdivisions of shareholders' equity. Present your answers in tabular form with the following columns. Use (I) for increase, (D) for decrease, and (NE) for no effect.

Item Share Capital Retained Earnings Total Shareholders’ Equity

Exercise 3

Westcock Shipbuilding Ltd. has a December 31 year end. On January 1, 2013, the company had the following shareholder’s equity accounts.

Westcock Shipbuilding Ltd. had the following transactions during 2013:

The company reported a profit of $450,000 and other comprehensive income of $15,000 for 2013.

Instructions

a. Record all of the transactions.

b. Prepare the Statement of Changes in Shareholders’ Equity.

Exercise 4

Peterson Corporation reported the following information related to the year ended July 31, 2014:

Instructions

Prepare Peterson’s statement of comprehensive income, statement of changes in shareholders’ equity, and the shareholders’ equity section of Peterson’s balance sheet at July 31, 2014. Ignore tax effects.

Exercise 5

Holiday Travel Corporation's shareholders' equity section at December 31, 2013 appears below:

Shareholders' equity

Common shares, no par value, 50,000 shares issued $600,000

Retained earnings 150,000

Total shareholders' equity $750,000

On June 30, 2014, the board of directors of Holiday Travel Corporation declared a 10% stock dividend, payable on July 31, 2014, to shareholders of record on July 15, 2014. The fair market value of Holiday Travel Corporation's shares on June 30, 2014, was $12 per share.

On December 1, 2014, the board of directors declared a 2-for-1 stock split effective December 15, 2014. Holiday Travel Corporation's shares were selling for $16 on December 1, 2014, before the stock split was declared. Profit for 2014 was $225,000 and there were no cash dividends declared.

Instructions

a. Prepare the journal entries on the appropriate dates to record the stock dividend and the stock split.

b. Fill in the amount that would appear in the shareholders' equity section for Holiday Travel Corporation at December 31, 2014, for the following items:

1. Common shares $____________

2. Number of shares issued $____________

3. Retained earnings $____________

4. Total shareholders' equity $____________

Exercise 6

Oswala Inc. had the following balances in its shareholders' equity at the beginning of the current year (January 1, 2014):

Preferred shares ($1.50, cumulative*, no par value, 100,000

shares authorized, 5,000 shares issued) $ 25,000

Common shares (no par value, 8,000 shares) 160,000

Retained earnings 92,000

Total shareholders' equity $277,000

*two years of dividends are in arrears.

During the year ended December 31, 2014, the following transactions took place:

1. On January 1, issued 9,000 common shares at $18 per share.

2. On July 1, declared a 10% stock dividend on the common shares, market price $18.50 per share. The dividend is to be paid on August 15 to shareholders of record on July 31.

3. On August 15, the company paid the stock dividend.

4. On September 15, Ryder’s board of directors declared a 4-for-1 stock split.

During the year, the company had a profit of $85,000.

Instructions

a. Prepare the journal entries to record the above transactions. Closing entries are not required.

b. Prepare a statement of changes in shareholders’ equity for 2014.

c. Prepare the shareholders’ equity section of the balance sheet at December 31, 2014.

Exercise 7

On January 1, 2014, the following information appears in the records of Boultin Holdings Inc.:

During the year, the company had the following transactions:

Mar 31 Declared cash dividends on common shares of $0.50 per share; payable to shareholders of record on April 10, and payable on April 25.

Jun 30 Declared the entire annual dividend required on preferred shares; payable to shareholders of record on July 15, and payable on July 31.

Sep 15 Declared a 10% stock dividend to shareholders of record on October 5, and distributable on October 15.

All dividends were paid or distributed on the due date.

Market price of Boultin’s common shares at various dates was as follows:

Jan 1 $10.00

Mar 31 10.10

Apr 10 10.25

Apr 25 10.20

Jun 30 10.30

Jul 15 10.35

Jul 31 10.25

Sep 15 10.50

Oct 5 10.45

Oct 15 10.40

Dec 31 10.60

At December 31, 2014 the accounting records indicate that Boultin’s profit for 2014 was $350,000 and other comprehensive income, consisting of a gain on fair value adjustments on equity investments was $28,000.

Instructions

a. Journalize the dividend transactions.

b. Prepare the statement of changes in shareholders equity for the year ended December 31, 2014.

c. Prepare the shareholders’ equity section of Boultin’s balance sheet at December 31, 2014.

Exercise 8

On January 1, 2013, Davin Corporation had $2,000,000 of common shares that were issued at $10 and retained earnings of $1,000,000. The corporation issued 100,000 common shares at $13 per share on July 1. On August 1, 2013, the company declared a $0.50 cash dividend to be paid on August 31, 2013 to shareholders of record on August 15, 2013. On December 15, the board of directors declared a 10% stock dividend to shareholders of record on December 31, 2013, payable on January 15, 2014. The market value of Davin Corporation shares was $15 per share on December 15 and $14 per share on December 31. Profit for 2013 was $500,000.

Instructions

a. Journalize the entries related to the above transactions.

b. Prepare the shareholders' equity section of the balance sheet for Davin Corporation at December 31, 2013.

c. Calculate the dividend payout ratio for 2013.

Exercise 9

On January 1, 2014, Only You Merchandise Ltd. has 5,000 common shared issued for a total of $7,500, and no other shares or contributed capital. During 2014, Only You had the following transactions:

Jan 15 Issued 1,500 common shares for $1.50 each.

Mar 31 Settled an account for legal expenses by issuing 3,000 shares. The value of the legal services was $5,000.

Jun 30 Reacquired 1,700 shares for $2.00 each.

Sep 30 Issued 10,000 shares in exchange for equipment with a fair value of $22,500.

Instructions

a. Record the transactions.

b. Calculate the number and average price of common shares issued at the end of 2014.

Exercise 10

RD Holdings Ltd. which has authorized share capital of an unlimited number of common shares, and no other authorized classes of shares, had the following share transactions during 2014, its first year of operations:

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

Jan 15 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 Holding’s shares is unchanged since January 2.

Dec 1 Reacquired the shares held by Gilmore Law Firm for $0.25 per share.

Instructions

Record the 2014 share transactions.

Exercise 11

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, 2014.

Exercise 12

Gabrial Ltd. was incorporated February 1, 2014 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 $2.30 per share.

Feb 21 Issued 4,000 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 preferred shares for $95 per share.

Sep 10 Reacquired 3,000 common shares for $1.75 per share.

Instructions

Prepare the journal entries to record the above transactions.

Exercise 13

Lake Ltd. was incorporated July 1, 2013. 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, 2014:

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.

May 10 Reacquired 65,000 common shares for $15 per share.

Instructions

Record the above transactions.

Exercise 14

Lee Holdings Ltd. was incorporated on January 2, 2014 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. On December 15, 10,000 common shares were reacquired for $0.90 each.

Instructions

a. Journalize the share transactions described.

b. Calculate the number of issued shares and average cost per share of each class remaining at the end of the year.

Exercise 15

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 non-cumulative preferred shares

During 2014, 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.

Jul 2 Reacquired 10,000 common shares for $3 per share.

SLL did not declare any dividends during 2014. On December 31, 2015, 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, 2014 and the average cost per common share.

Exercise 16

Moreland 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, 2014, 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 company had a balance of $50,000 in contributed surplus from previous years’ repurchase of common shares. The retained earnings balance on that date was $180,000 and accumulated other comprehensive income was $62,000. Profit for the year ending December 31, 2014 was $24,000 and other comprehensive income items for the year were $5,000. There were no dividends in arrears at January 1, 2014 and no dividends were declared during 2014.

During 2014, Moreland 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.

Dec 1 Reacquired 50,000 common shares for $5.25 each.

Instructions

a. Journalize the share transactions.

b. Prepare the equity section of Moreland’s balance sheet at December 31, 2014 and describe any additional disclosure required related to share capital.

Exercise 17

Appier Corporation had the information listed below available in preparing an income statement for the year ended December 31, 2014. All amounts are before income taxes. Assume a 30% income tax rate for all items.

Sales $950,000

Profit from operation of discontinued cement division 130,000

Loss from disposal of cement division (90,000)

Operating expenses 215,000

Rent revenue 85,000

Cost of goods sold 250,000

Instructions

Prepare a multiple-step income statement in good form.

Exercise 18

For the year ended December 31, 2014, Black Corporation reported the following information:

Cost of goods sold $225,000

Income tax expense 30,000

Operating expenses 193,000

Sales 524,000

Sales returns and allowances 14,000

Loss on fair value adjustment on equity investments 5,200

Instructions

Prepare the statement of comprehensive income for the year ended December 31, 2014 starting with profit. The company records gains and losses on its equity investments as other comprehensive income and has a 25% income tax rate.

Exercise 19

The following information is available from the accounting records of DeWitt Engineering Ltd. for the year ended June 30, 2014:

Fee discounts and allowances $ 26,000

Fee revenue 1,560,000

Interest revenue 6,000

Other operating expenses 590,000

Salaries expense 750,000

Gain on fair value adjustments on equity investments 31,000

Instructions

Prepare a combined Statement of Income and Comprehensive Income for the year ended June 30, 2014. The company has a 30% income tax rate and records gains and losses on equity investments as other comprehensive income.

Exercise 20

During 2014, the following independent events occurred at Sarajavo Corporation on the dates indicated:

1. Sales were understated by $145,000 for 2013. This error was discovered on January 20, 2014, when trying to reconcile the accounts receivable balance.

2. On March 31, 2014, Sarajavo Corporation discovered that Depreciation Expense on factory equipment for the year ended December 31, 2013, had been recorded twice, for a total amount of $60,000 instead of the correct amount of $30,000.

3. On June 30, 2014, Sarajavo Corporation discovers that its 2013 cost of goods sold was overstated by $14,500 as a result in counting inventory.

Assume Sarajavo has a 20% income tax rate.

Instructions

Prepare any journal entries required as a result of the information provided.

Exercise 21

The following information is taken from the trial balance of GlaxonSmith Supplies Ltd. at December 31, 2014, the company’s year end. GlaxonSmith has a 25% tax rate. One of the entries making up the balance of retained earnings is an adjustment that was required due to the overstatement of prior year’s depreciation expense by $1,600 which is net of tax effect.

Cash dividends $ 9,500

Common shares 9,000

Cost of goods sold 65,000

Dividends payable 2,500

Interest revenue 300

Operating expenses 34,200

Preferred shares 10,000

Retained earnings, beginning balance 3,100

Sales revenue 145,000

Instructions

Prepare the income statement and statement of retained earnings for GlaxonSmith for the year ended December 31, 2014 using the multiple-step format for the income statement.

Exercise 22

The following information is available for Reynolds Corporation:

Retained Earnings, December 31, 2013 $1,500,000

Profit for the year ended December 31, 2014 250,000

The company accountant, in preparing financial statements for the year ending December 31, 2014, has discovered the following information:

The company's previous bookkeeper, who has been fired, had recorded depreciation expense on a machine in 2012 and 2013 using the double diminishing-balance method of depreciation. The bookkeeper neglected to use the straight-line method of depreciation which is the company's policy. The cumulative effect of the error on prior years was $9,000. Depreciation was calculated by the straight-line method in 2014. Reynolds’ average tax rate is 22%. During 2014, Reynolds declared and paid cash dividends of $80,000.

Instructions

a. Calculate the impact on retained earnings.

b. Prepare the statement of retained earnings for 2014.

Exercise 23

The following accounts appear in the ledger of Niagra Inc. after the books are closed at December 31, 2014:

Common shares, 500,000 shares authorized, 400,000 shares issued $400,000

Common stock dividends distributable 80,000

$8 Preferred shares, 10,000 shares authorized, 3,000 shares issued 300,000

Retained earnings 950,000

Instructions

Prepare the shareholders' equity section of the balance sheet at December 31, 2014.

Exercise 24

On January 1, 2014, Chu Corporation had retained earnings of $422,000. During the year, Chu had the following selected transactions:

1. Declared cash dividends of $100,000.

2. Suffered a loss of $70,000.

3. Corrected understatement of 2013 profit because of an inventory error $45,000. The company has a 30% income tax rate.

Instructions

Prepare a statement of retained earnings for the year.

Exercise 25

Connolly Corporation had the following events during one fiscal year:

1. A stock dividend is declared on common shares.

2. The stock dividend is distributed.

3. Other comprehensive income for the year totals $350,000.

4. Cash dividends are declared.

5. The cash dividends are paid.

6. Profit for the year is $1,500,000.

7. Prior year’s profit had to be corrected to record additional revenue that had been earned, but which had not yet been paid for by the customer. The additional revenue increases the amount of taxes payable on the prior year’s income.

8. Repurchased common shares for an amount less than their average cost.

9. One third of the preferred shares are converted to common shares on a 1:10 ratio.

Instructions

Using the table provided, for each of the following financial statement categories, indicate the effect of the transaction as follows:

The category is increased +

The category is decreased –

There is no effect on the category NE

Exercise 26

On January 1, 2014, Grieve Grocers Inc.’s retained earnings account had a deficit (negative) balance of $75,000. During the year ended December 31, 2014, the company’s second year of operations, Grieve had the following events which occurred in the sequence listed:

1. Declared and distributed a 10% stock dividend on common shares. Prior to the dividend, Grieve had 60,000 common shares issued with a total cost of $160,000, and the market value of the shares was $6.50 each.

2. Approved at two-for-one stock split.

3. Declared a cash dividend in the amount of $1 per share which is payable 15 days after the company’s year end.

4. Profit for the year before taxes was $712,000.

5. Corrected the calculation of the prior year’s cost of goods sold, which had been reported as $875,000 but which should have been $900,000, and adjusted the resulting tax savings.

6. Incurred an Other Comprehensive Loss of $174,500 (before income taxes).

Instructions

Prepare Grieve’s statement of changes in shareholders’ equity for the year ended December 31, 2014 assuming that Grieve has an income tax rate of 25%.

Exercise 27

At January 1, 2014, Stevenson Inc. had the following shares authorized and issued:

Jan 1 Common shares issued 40,000

Common shares authorized Unlimited

Jan 1 Preferred shares issued 1,000

$9 cumulative preferred shares authorized 100,000

During 2014, Stevenson had the following share transactions:

Feb 1 Issued 5,000 preferred shares.

Apr 1 Issued 20,000 common shares.

Aug 1 Issued 18,000 common shares.

Dec 1 Issued 6,000 common shares.

On December 31, Stevenson declared a $9 per share dividend on all issued preferred shares. Stevenson’s 2014 profit was $435,000.

Instructions

a. Calculate the weighted average number of common shares in 2014.

b. Calculate the profit available to common shareholders for 2014.

c. Calculate the 2014 earnings per share.

Exercise 28

Saha Company had profit of $1,020,000 for the year ended December 31, 2014. At the beginning of the year, there were 300,000 common shares authorized, and 47,000 shares issued. In addition, during 2014, the company declared a dividend of $7 per share on its 10,000 preferred shares and issued 50,000 common shares on October 1.

Instructions

Calculate earnings per share for the year ended December 31, 2014.

Exercise 29

The market price of Sanji’s Paper Inc.’s common shares was $50 per share as quoted in today’s Globe and Mail. Earnings per share were $5.

Instructions

Calculate the price-earnings ratio for Sanji. If the price-earnings ratio is high, what can the ratio mean?

Exercise 30

At January 1, 2014, Morrisey Corporation had the following share capital. At that time no preferred dividends were in arrears:

$2 Preferred shares, cumulative, 500,000 shares

authorized, 1,000 shares issued $650,000

Common shares, 1,000,000 shares authorized,

10,000 shares issued 250,000

$900,000

On July 1, 2014, the board of directors declared and paid a $1.50 cash dividend on common shares, and the full annual dividend to which the preferred shareholders were entitled. On October 1, 2014, Morrisey sold an additional 80,000 common shares for proceeds of $280,000. The corporation earned $650,000 during the year.

Instructions

a. Calculate Morrisey’s earnings per share for 2014.

b. Calculate Morrisey’s total dividend payout ratio for 2014.

Exercise 31

Groom Corporation had profit of $415,000 for the year ended December 31, 2014. On January 1, 2014, there were 90,000 common shares issued. Preferred dividends of $70,000 were declared and paid during 2014.

Instructions

Calculate the earnings per share for Groom Corporation for the year ended December 31, 2014.

Exercise 32

At December 31, 2014, Sookie Limited has $500,000 of $4, cumulative preferred shares issued at $100 per share and $3,000,000 of common shares issued at $10 per share. Sookie's profit for the year is $960,000.

Instructions

Calculate earnings per share for 2014 under the following independent situations. (Round to two decimals.)

a. The dividend to preferred shareholders was declared, and there has been no change in the number of common shares during the year.

b. The dividend to preferred shareholders was not declared. The preferred shares are cumulative.

Exercise 33

At July 1, 2013, Peters Corporation had the following share capital:

$2 Preferred shares, cumulative*, 200,000 shares

authorized, 50,000 shares issued $ 800,000

Common shares, 1,000,000 shares authorized, 100,000

shares issued 2,500,000

$3,300,000

*The preferred dividends are 2 years in arrears.

On January 1, 2014, the board of directors declared and paid a 15% common stock dividend when the market price of common shares was $23.50. On April 1, 2014, the company sold an additional 1,000,000 common shares for proceeds of $5,680,000. The corporation earned $722,000 during the year and paid $186,000 in dividends.

Instructions

a.. Calculate Peters Corporation’s earnings per share for the year ended June 30, 2014, assuming the company paid $186,000 in cash dividends.

b. Calculate Peters Corporation’s earnings per share for the year ended June 30, 2014, assuming the company paid $186,000 in cash dividends but there were no preferred dividends in arrears.

c. Calculate Peters Corporation’s earnings per share for the year ended June 30, 2014, assuming the preferred dividends are noncumulative and $50,000 in total cash dividends were paid during the year.

Exercise 34

Ahab Fisheries Inc. has authorized share capital of an unlimited number of common shares and 300,000 $2-cumulative preferred shares.

As of January 1, 2014, 50,000 common shares had been issued at an average cost of $4 each. During 2014, 10,000 common shares were issued on April 1 for cash of $45,000 and on July 1, 20,000 were issued at $4.75 each. On December 15, a cash dividend of $0.50 per share on all common shares was declared, payable to shareholders of record on December 31, and payable on January 20, 2015.

On January 1, 2014, the first preferred shares were issued. $600,000 was received for 80,000 preferred shares. On October 1, the annual dividends on the preferred shares were declared, payable to shareholders of record on October 15, and payable on October 28.

Retained earnings on January 1, 2014 were $336,000 and accumulated other comprehensive income was $57,000. Ahab had profit of $323,000 in 2014, and other comprehensive income items totalling $37,500. All dividends were paid on their due dates. On December 31, 2014, Ahab’s common shares were trading at $76.50.

Instructions

a. Calculate the profit available to common shareholders.

b. Calculate the weighted average number of common shares in 2014.

c. Calculate the earnings per share.

d. Calculate the price-earnings ratio at December 31, 2014.

Exercise 35

The following information is available for a fictitious Canadian public corporation:

Instructions

For each of the three years, calculate the earnings per share, the price earnings ratio, and the common share dividend payout ratio.