Question
Crimson Pottery Corporation is authorized to issue 40,000 shares of $7 convertible preferred shares and 300,000 common shares. On January 1, 2020, the accounts contained
Crimson Pottery Corporation is authorized to issue 40,000 shares of $7 convertible
preferred shares and 300,000 common shares. On January 1, 2020, the accounts
contained the following shareholders equity balances. CPC follows IFRS.
Preferred Shares (10,000 shares issued) $ 720,000
Common Shares (105,000 shares issued) 1,620,000
Retained Earnings 380,000
During 2020, the following transactions occurred:
Feb. 1 Issued 1,000 preferred shares for land. The land had a fair market value of $75,000.
July 1 Shareholders of 4,000 preferred shares originally purchased at $71 per share converted their shares into common shares. Each preferred share was convertible into five common shares. Market values on July 1 were: preferred shares $73 each and common shares $15 each.
Sept. 1 Issued 800 preferred shares for a patent. The asking price of the patent was
$62,000. Market values on Sept.1 were: preferred shares $74 each and the patents value was not determinable.
Dec. 1 Shareholders of 2,000 preferred shares originally purchased at $72 per share converted their shares into common shares. Each preferred share was convertible into five shares common shares. Market values on Dec. 1 were: preferred shares $75 each and common shares $17 each.
Dec. 31 Profit for the year was $312,000. No dividends were declared during the year.
Instructions:
- Prepare the journal entries to record the above transactions and the closing entry for profit.
- Prepare the shareholders equity section of the balance sheet at December 31, 2020.
c. Calculate the companys return on equity for 2020.
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