Question 3 24 markS Westcock Shipbuilding Ltd has a December

Question 3: (24 markS) Westcock Shipbuilding Ltd. has a December 31 year end. On January 1, 2017, the company had the following shareholder\'s equity accounts Preferred shares, $4 non-cumulative, unlimited number authorized, 7,000 issued Common shares, unlimited number authorized, 150,000 issued Retained earnings Accumulated Other Comprehensive Income $850,000 2,250,000 1,750,000 22,000 Westcock Shipbuilding Ltd. had the following transactions during 2017: Issued 700 preferred shares at $95 per share. Reacquired 5,000 common shares at $16 a share. Announced a 3-for-1 stock split of the common shares. Immediately before the split, the share price was $13 a share. Declared the annual dividend on preferred shares for the shareholders of record on Sep 30, payable on Oct 15 Declared a common share dividend of $0.50 a share for all shareholders of record Nov 30. The dividend is payable on Dec 15 Jan 31 Mar 2 Jun 28 Sep 15 Oct 31 The company reported a profit of $450,000 and other comprehensive income of $15,000 for 2017. Required: a) Prepare journal entries to record all of the transactions b) Prepare the Statement of Changes in Shareholder\'s Equity (HINTS: (a) Use format similar to that shown in Illustration 14-10 on page 747 in the textbook; (b) you will need a column for Preferred shares instead of Contributed Surplus)

Solution

Journal Entries

Date

Particulars

Debit

Credit

31-Jan

Cash

$66,500.00

Preferred Shares

$66,500.00

Preferred Shares being issued

2-Mar

Cash

$80,000.00

Treasury stock

$80,000.00

Common stocks being repurchased

28-Jun

No entry required, since stocks do not have any par value

15-Sep

Dividends - Preferred

$30,800.00

Dividends Payable - Preferred

$30,800.00

Preferred dividends at $4 per dividend being declared

30-Sep

Dividends Payable - Preferred

$30,800.00

Cash

$30,800.00

Preferred dividends declared being paid

31-Oct

Dividends - Common

$217,500.00

Dividends Payable - Common

$217,500.00

Common stock dividends being declared

15-Dec

Dividends Payable - Common

$217,500.00

Cash

$217,500.00

Common dividends declared being paid

Dividends payable – Preferred = (7,000 + 700) x $4 = $30,800

Dividends payable – Common = (150,000 – 5,000) x $0.50 = $217,500

Stocks repurchased at $16 = 5,000 x $16 = $80,000

Statement of Changes in Shareholders\' Equity

Year ended on December 31, 2017

Preferred Share Capital

Common Share Capital

Treasury Shares

Retained Earnings

Accumulated Other Comprehensive Income

Total Equity

Balance at January 1, 2017

$850,000

$2,250,000

$0

$1,750,000

$22,000

$4,872,000

Profit for the year

$0

$0

$0

$450,000

$0

$450,000

Other Comprehensive Income

$0

$0

$0

$0

$15,000

$15,000

Dividends - Preferred

$0

$0

$0

$30,800

$0

$30,800

Dividends - Common

$0

$0

$0

$217,500

$0

$217,500

Purchase of Own Shares

$0

$0

$80,000

($80,000)

$0

$0

Balance at December 31, 2017

$850,000

$2,250,000

$80,000

$2,368,300

$37,000

$5,585,300

Journal Entries
Date	Particulars	Debit	Credit
31-Jan	Cash	$66,500.00
	Preferred Shares		$66,500.00
	Preferred Shares being issued
2-Mar	Cash	$80,000.00
	Treasury stock		$80,000.00
	Common stocks being repurchased
28-Jun	No entry required, since stocks do not have any par value
15-Sep	Dividends - Preferred	$30,800.00
	Dividends Payable - Preferred		$30,800.00
	Preferred dividends at $4 per dividend being declared
30-Sep	Dividends Payable - Preferred	$30,800.00
	Cash		$30,800.00
	Preferred dividends declared being paid
31-Oct	Dividends - Common	$217,500.00
	Dividends Payable - Common		$217,500.00
	Common stock dividends being declared
15-Dec	Dividends Payable - Common	$217,500.00
	Cash		$217,500.00
	Common dividends declared being paid
Dividends payable – Preferred = (7,000 + 700) x $4 = $30,800
Dividends payable – Common = (150,000 – 5,000) x $0.50 = $217,500
Stocks repurchased at $16 = 5,000 x $16 = $80,000
Statement of Changes in Shareholders\' Equity
Year ended on December 31, 2017
	Preferred Share Capital	Common Share Capital	Treasury Shares	Retained Earnings	Accumulated Other Comprehensive Income	Total Equity
Balance at January 1, 2017	$850,000	$2,250,000	$0	$1,750,000	$22,000	$4,872,000
Profit for the year	$0	$0	$0	$450,000	$0	$450,000
Other Comprehensive Income	$0	$0	$0	$0	$15,000	$15,000
Dividends - Preferred	$0	$0	$0	$30,800	$0	$30,800
Dividends - Common	$0	$0	$0	$217,500	$0	$217,500
Purchase of Own Shares	$0	$0	$80,000	($80,000)	$0	$0
Balance at December 31, 2017	$850,000	$2,250,000	$80,000	$2,368,300	$37,000	$5,585,300