Assignment 2: ACCT 3211

"P15-1Transactions of Kent Corporation are as follows.

1. The company is granted a charter that authorizes the issuance of 150,000 preferred shares and 150,000 common shares without par value. 2. The founders of the corporation are issued 10,000 common shares for land valued by the board of directors at $210,000 (based on an independent valuation). 3. Sold 15,200 preferred shares for cash at $110 per share. 4. Repurchased and cancelled 3,000 shares of outstanding preferred shares for cash at $100 per share. 5. Paid $85,000 in dividends that were declared in the previous period. 6. Repurchased for cash and cancelled 500 shares of the outstanding common shares issued in item 2 above at $49 per share. 7. Issued 2,000 preferred shares at $99 per share. Instructions

(a) Prepare entries in journal form to record the transactions listed above. No other transactions affecting the capital share accounts have occurred." "(b) Assuming that the company has retained earnings from operations of $1,032,000, prepare the shareholders' equity section of its statement of financial position after considering all the transactions above. (c) Why is the distinction between paid-in capital and retained earnings important? (d) How would the repurchase of the preferred shares differ if the preferred shares were retractable or callable/redeemable?"

"P15-2

Oregano Inc. was formed on July 1, 2011. It was authorized to issue 300,000 shares of no par value common shares and 100,000 shares of cumulative and non-participating preferred shares carrying a $2 dividend. The company has a July 1 to June 30 fiscal year. The following information relates to the company's shareholders' equity account.

Common Shares Before the 2013-14 fiscal year, the company had 110,000 outstanding common shares issued as follows: 1. 95,000 shares issued for cash on July 1, 2011, at $31 per share 2. 5,000 shares exchanged on July 24, 2011, for a plot of land that cost the seller $70,000 in 2001 and had an estimated fair value of $220,000 on July 24, 2011 3. 10,000 shares issued on March 1, 2012; the shares had been subscribed for $42 per share on October 31, 2011

Oct. 1, 2013

Subscriptions were received for 10,000 shares at $46 per share. Cash of $92,000 was received in full payment for 2,000 shares and share certificates were issued. The remaining subscription for 8,000 shares was to be paid in full by September 30, 2014, and the certificates would then be issued on that date.

Nov. 30, 2013

The company purchased 2,000 of its own common shares on the open market at $39 per share. These shares were restored to the status of authorized but unissued shares.

Dec. 15, 2013

The company declared a 5% stock dividend for shareholders of record on January 15, 2014, to be issued on January 31, 2014. The company was having a liquidity problem and could not afford a cash dividend at the time. The company's common shares were selling at $52 per share on December 15, 2013.

June 20, 2014 The company sold 500 of its own common shares for $21,000."

Preferred Shares

"The company issued 50,000 preferred shares at $44 per share on July 1, 2011.

Cash Dividends The company has followed a schedule of declaring cash dividends each year in December and June and making the pay- ment to shareholders of record in the following month. The cash dividend declarations have been as follows since the company's first year and up until June 30, 2014:

Declaration Date Dec. 15, 2012 June 6, 2013 Dec. 15, 2013

Common Shares $0.30 per share $0.30 per share

Preferred Shares $3.00 per share $1.00 per share $1.00 per share

No cash dividends were declared during June 2014 due to the company's liquidity problems.

Retained Earnings As at June 30, 2013, the company's Retained Earnings account had a balance of $690,000. For the fiscal year ending June 30, 2014, the company reported net income of $40,000. In March 2013, the company received a term loan from Alberta Bank. The bank requires the company to establish a sinking fund and restrict retained earnings for an amount equal to the sinking fund deposit. The annual sinking fund payment of $50,000 is due on April 30 each year; the first payment was made on schedule on April 30, 2014.

Instructions (a) Prepare the shareholders' equity section of the company's statement of financial position, including appropriate notes, as at June 30, 2014, as it should appear in its annual report to the shareholders. (b) Prepare the journal entries for the 2013-14 fiscal year. (c) Discuss why the common shareholders might be willing to accept a stock dividend during the year rather than a cash dividend."

"E16-6(Issuance and Conversion of Bonds) The following are unrelated transactions. 1. On March 1, 2014, Loma Corporation issued $300,000 of 8% non-convertible bonds at 104, which are due on February 28, 2034. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which enti- tled the bondholder to purchase one of Loma's no par value common shares for $50. The bonds without the war- rants would normally sell at 95. On March 1, 2014, the fair value of Loma's common shares was $40 per share and the fair value of each warrant was $2. Loma prepares its financial statements in accordance with IFRS.

2. Grand Corp. issued $10 million of par value, 9%, convertible bonds at 97. If the bonds had not been convertible, the company's investment banker estimates they would have been sold at 93. Grand Corp. has adopted ASPE, and would like to explore all options available to report the convertible bond. 3. Hussein Limited issued $20 million of par value, 7% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $6. Hussein Limited has adopted ASPE.

4. On July 1, 2014, Tien Limited called its 9% convertible bonds for conversion. The $10 million of par value bonds were converted into 1 million common shares. On July 1, there was $75,000 of unamortized discount applicable to the bonds, and the company paid an additional $65,000 to the bondholders to induce conversion of all the bonds. At the time of conversion, the balance in the account Contributed SurplusConversion Rights was $270,000, and the bond's fair value (ignoring the conversion feature) was $9,955,000. The company records conversion using the book value method. The company prepares its financial statements using IFRS.

5. On December 1, 2014, Horton Company issued 500 of its $1,000, 9% bonds at 103. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 of Horton's common shares. On December 1, 2014, the fair value of the bonds, without the stock warrants, was 95, and the fair value of each stock warrant was $50. Horton Company prepares its financial statements in accordance with IFRS.

Instructions

Present the required entry(ies) to record each of the above transactions."