P13-32. Accounting for contributed capital and retained earnings (L.O. 13-3, L.O. 13-4) (Difficult 30 minutes)

Fenwick Ltd. began operations in 2016. Its fiscal year-end is December 31. Components of the condensed balance sheet as at December 31, 2018, are as follows:

Current liabilities	$ 400,000
Bonds payable7%, mature 2022	8,000,000
Total liabilities	$8,400,000
Common shares500,000 authorized, 300,000 issued and outstanding	$6,000,000
Contributed surpluscommon shares, from share repurchases and resales	400,000
Retained earnings (deficit)	(200,000)
Total shareholders equity	$6,200,000

During 2019, Fenwick had the following activities:

i. January 1: Issued 40,000 preferred shares with cumulative dividends of $1.25 per share. Proceeds were $480,000, or $12 per share.

ii. July 1: Repurchased and cancelled 50,000 common shares at a cost of $18 per share.

iii. Net income for the year was $1,700,000.

During 2020, the company had the following activities:

i. July 1: Repurchased and cancelled 60,000 common shares at a cost of $30 each.

ii. December 31: Fenwick declared dividends totalling $400,000.

iii. Net income for the year was $800,000.