Question
ABC Corporation had the following shareholders equity balances at January 1, 2020: Common shares, unlimited authorized, 400,000 issued $800,000 Retained earnings 120,000 Accumulated other comprehensive
ABC Corporation had the following shareholders equity balances at January 1, 2020:
Common shares, unlimited authorized, 400,000 issued $800,000
Retained earnings 120,000
Accumulated other comprehensive income 30,000
The following events occurred in 2020:
- Issued 50,000 common shares for $150,000 cash.
- Declared and paid cash dividends of $25,000.
- Reported net income of $40,000.
- Reported other comprehensive income of $10,000.
- At the end of the year, the fair market value of common shares was $5/share.
- Completed a 2:1 stock-split.
Required:
- Prepare a statement of changes in equity using the following tabular format (i.e., input numbers into the table below):
| Common Shares | Retained Earnings | Accumulated Other Comprehensive Income | Total |
January 1, 2020 |
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|
|
|
|
|
|
|
|
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|
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December 31, 2020 |
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- Would your answer to part a) above change if the company paid a stock dividend rather than a cash dividend? Explain.
- Briefly explain why the shareholders equity section is important to users of financial statements.
- Provide your views on the following quote from the President of Medical Ltd, a struggling pharmaceutical company that focuses on developing new and innovative medications:
Investors are important. We need to please them. We need to maintain a high dividend payout ratiowhatever it takesI want to show an increasing dividend payout ratio.
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