Exercise 3: Share Issuance, Purchase and EPS (16 Marks)

The Westfort Coffee Company has been in operation for 5 years. On January 1, their Balance sheet showed an equity section as follows:

Contributed Capital:

Common Shares, unlimited shares authorized

20,000 shares authorized and outstanding $ 60,000

Total Contributed Capital $ 60,000

Retained Earnings 40,000

Total Equity $100,000

Step 1

On April 1 the Board of Directors approved and issued another 5,000 shares for the total price of $45,000. Show the journal entry to account for the share issuance and update the Equity section to show the new balances, assuming no change in Retained Earnings.

Contributed Capital:

Common Shares, unlimited shares authorized

_____ shares authorized and outstanding $__________

Total Contributed Capital $ ___________

Retained Earnings

Total Equity $___________

Step 2

On October 1 the Board of Directors approved the buy-back of 2,000 shares for $10,000. Show the journal entry to account for the share retirement and update the Equity section to show the new balances, assuming no change in Retained Earnings. Contributed Capital:

Common Shares, unlimited shares authorized

_____ shares authorized and outstanding $______

Total Contributed Capital $

Retained Earnings

Total Equity $

Step 3

The December 31 net profit of the company was $41,850. Update the Equity section to reflect the change in Retained earnings.

Contributed Capital:

Common Shares, unlimited shares authorized

_____ shares authorized and outstanding $______

Total Contributed Capital $ __________

Retained Earnings

Total Equity $ ___________

Step 4

Calculate the Earnings per share, remembering to calculate the Weighted Average number of shares.