CHAPTER 11
Corporations: Organization, Share Transactions,
Dividends, and Retained Earnings
ASSIGNMENT CLASSIFICATION TABLE
Brief
Exercises

Do It!

Exercises

1, 2, 3, 4,
5, 6

1

1, 2

1, 2

Record the issuance of ordinary shares.

7, 8, 9,
10, 11

2, 3, 4

3

*3.

Explain the accounting for treasury shares.

12, 13, 14

5

4

*4.

Differentiate preference shares from ordinary shares. 15

6

*5.

Prepare the entries for cash dividends and share dividends.

17, 18, 19,
20, 21, 22

7, 8, 9

*6.

Identify the items that are reported in a retained earnings statement.

16, 23, 24

Questions

*1.

Identify the major characteristics of a corporation. *2.

7.

Prepare and analyze a comprehensive equity section. *8.

Compute book value per share. B
Problems

2, 3, 4, 7,
8, 11, 12

1A, 3A, 6A

1B, 3B

5, 7, 9
11, 12

2A, 3A, 6A

2B, 3B

6, 7, 10, 11,
12, 24

1A, 3A, 6A

1B, 3B

5, 6

13, 14, 15,
16, 25

4A, 5A, 7A

4B, 6B

10, 11

7

17, 18

5A

5B, 6B

8

10, 11, 19,
20, 21, 22,
23, 25

1A, 2A, 3A,
4A, 5A, 6A,
7A, 8A

1B, 2B, 3B,
4B, 5B, 6B,
7B

Describe the use and content of the statement of changes in equity.

*9

A
Problems

12

Study Objectives

9A

25, 26

13

23, 24, 25

3A, 8A

3B, 7B

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter. Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-1

ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number

Difficulty
Level

Description

Time
Allotted (min.)

Simple

30–40

1A

Journalize share transactions, post, and prepare share capital section.

2A

Journalize and post treasury share transactions, and prepare equity section.

Moderate

25–35

3A

Journalize and post transactions, prepare equity section.

Moderate

40–50

4A

Prepare dividend entries and equity section.

Moderate

30–40

5A

Prepare retained earnings statement and equity section, and compute earnings per share.

Moderate

30–40

6A

Prepare entries for share transactions and equity section.

Moderate

30–40

7A

Prepare dividend entries and equity section.

Moderate

30–40

*8A

Prepare equity section; compute book value per share.

Simple

20–30

*9A

Prepare statement of changes in equity.

Simple

20–30

1B

Journalize share transactions, post, and prepare share capital section.

Simple

30–40

2B

Journalize and post treasury share transactions, and prepare equity section.

Moderate

25–35

3B

Journalize and post transactions, prepare equity section.

Moderate

40–50

4B

Prepare dividend entries and equity section.

Moderate

30–40

5B

Prepare retained earnings statement and equity section.

Moderate

30–40

6B

Prepare retained earnings statement and equity section, and compute earnings per share.

Moderate

30–40

Simple

20–30

*7B

11-2

Prepare equity section; compute book value per share.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

WEYGANDT IFRS 1E
CHAPTER 11
CORPORATIONS: ORGANIZATION, SHARE TRANSACTIONS,
DIVIDENDS, AND RETAINED EARNINGS
Number
BE1
BE2
BE3
BE4
BE5
BE6
BE7
BE8
BE9
BE10
BE11
BE12
BE13
DI1
DI2
DI3
DI4
DI5
DI6
DI7
DI8
EX1
EX2
EX3
EX4
EX5
EX6
EX7
EX8
EX9
EX10
EX11
EX12
EX13
EX14

SO

BT

Difficulty

Time (min.)

1
2
2
2
3
4
5
5
5
6
6
7
9
1
1
2
3
5
5
6
7
1
1, 2
2
2
3
4
2–4
2
3
4, 7
2–4, 7
2–4
5
5

K
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
K
AP
AP
AP
AP
AP
AP
AP
K
K
AP
AP
AP
AP
AP
AP
AP
AP
C, AP
AN
AP
AP

Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Moderate
Simple
Simple

4–6
2–3
2–3
2–4
4–6
2–3
2–4
4–6
6–8
3–5
4–6
4–6
2–4
2–4
4–6
4–6
4–6
6–8
6–8
4–6
6–8
6–8
6–8
6–8
8–10
8–10
6–8
6–8
4–6
8–10
8–10
6–8
8–10
6–8
4–6

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-3

CORPORATIONS: ORGANIZATION, SHARE TRANSACTIONS,
DIVIDENDS, AND RETAINED EARNINGS
Number

SO

BT

Difficulty

Time (min.)

EX15
EX16
EX17
EX18
EX19
EX20
EX21
EX22
EX23
EX24
EX25
P1A
P2A
P3A
P4A
P5A
P6A
P7A
P8A
P9A
P1B
P2B
P3B
P4B
P5B
P6B
P7B
BYP1
BYP2
BYP3
BYP4
BYP5
BYP6

5
5
6
6
7
7
7
7
7, 9
4, 9
5, 7, 9
2, 4, 7
3, 7
2–4, 7, 9
5, 7
5, 6, 7
2–4, 7
5, 7
7, 9
8
2, 4, 7
3, 7
2–4, 7, 9
5, 7
6, 7
5, 6, 7
7, 9
1
7, 9
3
1, 3, 4
1, 4
—

AP
AN
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AN
AN
C
S
E

Simple
Moderate
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Simple
Moderate
Moderate
Moderate
Simple
Moderate
Moderate
Simple
Simple
Simple
Moderate
Moderate
Moderate
Moderate
Moderate
Simple
Simple
Simple
Simple
Moderate
Simple
Simple

6–8
5–7
4–6
4–6
4–6
8–10
6–8
6–8
10–12
6–8
8–10
30–40
25–35
40–50
30–40
20–30
20–30
30–40
20–30
20–30
30–40
25–35
40–50
30–40
30–40
30–40
20–30
10–15
15–20
15–20
15–20
10–15
10–15

11-4

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

E11-16

P11-4A
P11-5A
P11-7A
P11-4B
P11-6B
P11-5B
P11-6B
P11-2B
P11-3B
P11-4B
P11-5B
P11-6B
P11-7B

E11-6
E11-13
E11-14
E11-15
E11-25
E11-17
E11-18
P11-5A
P11-1A
P11-2A
P11-3A
P11-4A
P11-5A
P11-6A
P11-7A
P11-8A
P11-1B

BE11-7
BE11-8
BE11-9
DI11-5
DI11-6
BE11-10
BE11-11
DI11-7

Q11-17
Q11-18
Q11-19
Q11-20
Q11-21
Q11-16
Q11-23
Q11-24
E11-11
E11-13

5. Prepare the entries for cash dividends and share dividends.

6. Identify the items that are reported in a retained earnings statement.

7. Prepare and analyze a comprehensive equity section.

Describe the use and content of the statement of changes in equity.

(For Instructor Use Only)

*9.

Broadening Your Perspective

Compute book value per share.

*8.
Q11-26

Financial Reporting
Comparative Analysis
Communication
A Global Focus

Research Case
Exploring the Web

E11-25
P11-3A
P11-8A
BE11-13
E11-23
E11-24

P11-9A
E11-23
Q11-25

BE11-12
DI11-8
E11-10
E11-19
E11-20
E11-21
E11-22
E11-23
E11-25

P11-3B
P11-7B

E11-12

P11-1B
P11-3B

E11-24
P11-1A
P11-3A
P11-6A

Q11-15
E11-11

4. Differentiate preference shares from ordinary shares.

Q11-22

E11-12

P11-2B
P11-3B

E11-9
P11-2A
P11-3A
P11-6A

BE11-5
DI11-4
E11-5
E11-7

Q11-12
Q11-13
Q11-14
E11-11

3. Explain the accounting for treasury shares. BE11-6
E11-6
E11-7
E11-10

E11-12

P11-3A
P11-6A
P11-1B
P11-3B

Q11-4 DI11-1
Q11-5 E11-1
Q11-6 E11-2
BE11-1
E11-3
E11-4
E11-7
E11-8
P11-1A

1. Identify the major characteristics of a corporation. Q11-7
BE11-2
BE11-3
BE11-4
DI11-3

Analysis

Q11-8
Q11-9
Q11-10
Q11-11
E11-11

Application

2. Record the issuance of ordinary shares. E11-2

Comprehension
DI11-2

Knowledge
Q11-1
Q11-2
Q11-3
BE11-1

Study Objective

Interpreting
Financial
Statements
Group Decision

Synthesis

Evaluation

Ethics Case
Cookie Chronicle

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems

BLOOM’S TAXONOMY TABLE

11-5

ANSWERS TO QUESTIONS
1.

(a) Separate legal existence. A corporation is separate and distinct from its owners and it acts in its own name rather than in the name of its shareholders. In contrast to a partnership, the acts of the owners (shareholders) do not bind the corporation unless the owners are duly appointed agents of the corporation.
(b) Limited liability of shareholders. Because of its separate legal existence, creditors of a corporation ordinarily have recourse only to corporate assets to satisfy their claims. Thus, the liability of shareholders is normally limited to their investment in the corporation.
(c) Transferable ownership rights. Ownership of a corporation is held in capital shares. The shares are transferable units. Shareholders may dispose of part or all of their interest by simply selling their shares. The transfer of ownership to another party is entirely at the discretion of the shareholder.

2.

(a) Corporation management is an advantage to a corporation because it can hire professional managers to run the company. Corporation management is a disadvantage to a corporation because it prevents owners from having an active role in directly managing the company.
(b) Two other disadvantages of a corporation are government regulations and additional taxes.
A corporation is subject to numerous regulations. For example, securities laws govern the sale of shares to the general public. Corporations must pay income taxes. These taxes are substantial. In addition, shareholders must pay income taxes on cash dividends received.

3.

No, Kari is not correct. A corporation must be incorporated in only one state. It is to the company’s advantage to incorporate in a state whose laws are favorable to the corporate form of business organization. A corporation may incorporate in a state in which it does not have a headquarters office or major operating facilities.

4.

In the absence of restrictive provisions, the basic ownership rights of ordinary shareholders are the rights to:
(1) vote in the election of the board of directors and on corporate actions that require shareholders’ approval. (2) share in corporate earnings.
(3) maintain the same percentage ownership when additional ordinary shares are issued (the preemptive right).
(4) share in assets upon liquidation.

5.

Legally, a corporation is an entity, separate and distinct from its owners. As a legal entity, a corporation has most of the privileges and is subject to the same duties and responsibilities as a person.
The corporation acts under its own name rather than under the names of its shareholders. A corporation may buy, own, and sell property, borrow money, enter into legally binding contracts, and sue or be sued.

6.

(a) The two principal components of equity for a corporation are share capital (the investment of cash and other assets in the corporation by shareholders in exchange for share capital) and retained earnings. The principal source of retained earnings is net income.
(b) Share capital is the term used to describe the total amount paid-in for shares. Share capital may result through the sale of ordinary shares, preference shares, or treasury shares.

11-6

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

Questions Chapter 11 (Continued)
7.

The maximum number of shares that a corporation is legally allowed to issue is the number authorized. Sokol Corporation is authorized to sell 100,000 shares. Of these shares, 80,000 shares have been issued. Outstanding shares are those issued shares which have not been reacquired by the corporation; in other words, issued shares less treasury shares. Sokol has
73,000 shares outstanding (80,000 issued less 7,000 treasury).

8.

The par value of ordianry shares has no effect on its market value. Par value is a legal amount per share which usually indicates the minimum amount at which a share can be issued. The market value depends on a number of factors, including the company’s anticipated future earnings, its expected dividend rate per share, its current financial position, the current state of the economy, and the current state of the securities markets. Therefore, either investment mentioned in the question could be the better investment, based on the above factors and future potential. The relative par values should have no effect on the investment decision.

9.

Among the factors which influence the market value of shares are the company’s anticipated future earnings, its expected dividend rate per share, its current financial position, the current state of the economy, and the current state of the securities markets.

10.

The sale of ordinary shares below par value is not permitted in most states.

11.

When shares are issued for services or noncash assets, the cost should be measured at either the fair value of the consideration given up (in this case, the shares) or the fair value of the consideration received (in this case, the land), whichever is more clearly evident. In this case, the fair value of the shares is more objectively determinable than that of the land, since the shares are actively traded in the securities market. The appraised value of the land is merely an estimate of the land’s value, while the market price of the shares is the amount each share was actually worth on the date of exchange. Therefore, the land should be recorded at $90,000, the share capital—ordinary at $20,000, and the excess ($70,000) as share premium—ordinary.

12.

A corporation may acquire treasury shares: (1) to reissue the shares to officers and employees under bonus and share compensation plans, (2) to increase trading of the company’s share in the securities market in the hopes of enhancing its market value, (3) to have additional shares available for use in the acquisition of other companies, (4) to reduce the number of shares outstanding and, thereby, increase earnings per share, and (5) to rid the company of disgruntled investors.

13.

When treasury shares are purchased, Treasury shares is debited and Cash is credited at cost (€12,000 in this example). Treasury shares is a contra equity account and cash is an asset. Thus, this transaction: (a) has no effect on net income, (b) decreases total assets,
(c) has no effect on retained earnings, and (d) decreases total equity.

14.

When treasury shares are resold at a price above original cost, Cash is debited for the amount of the proceeds (€15,000), Treasury Shares is credited at cost (€12,000), and the excess (€3,000) is credited to Share Premium-Treasury. Cash is an asset, and the other two accounts are part of equity. Therefore, this transaction: (a) has no effect on net income, (b) increases total assets,
(c) has no effect on retained earnings, and (d) increases total equity.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-7

Questions Chapter 11 (Continued)
15.

(a) Ordinary shares and preference shares both represent ownership of the corporation.
Ordinary shares signifies the basic residual ownership; preference shares is ownership with certain privileges or preferences. Preference shareholders typically have a preference as to dividends and as to assets in the event of liquidation. However, preference shareholders generally do not have voting rights.
(b) Some preference shares possess the additional feature of being cumulative. Most preference shares are cumulative—preference shareholders must be paid both current-year dividends and unpaid prior year dividends before ordinary shareholders receive any dividends.
(c) Dividends in arrears are disclosed in the notes to the financial statements.

16.

The debits and credits to retained earnings are:
Debits
1.
2.
3.
4.

Net loss
Prior period adjustments for overstatements of net income
Cash and share dividends
Some disposals of treasury shares

Credits
1.
2.

Net income
Prior period adjustments for understatements of net income

17.

For a cash dividend to be paid, a corporation must have retained earnings, adequate cash, and a dividend declared by the board.

18.

May 1 is the date on which the board of directors formally declares (authorizes) and announces the cash dividend. May 15 is the record date which marks the time when ownership of outstanding shares is determined for dividend purposes from the shareholders’ records. May 31 is the date when the dividend checks are mailed to shareholders. Accounting entries are made on May 1
(debit Cash Dividends and credit Dividends Payable), and on May 31 (debit Dividends Payable and credit Cash).

19.

A cash dividend decreases assets, retained earnings, and total equity. A share dividend decreases retained earnings, increases share capital and share premium, and has no effect on total assets and total equity.

20.

A corporation generally issues share dividends for one of the following reasons:
(1) To satisfy shareholders’ dividend expectations without spending cash.
(2) To increase the marketability of its shares by increasing the number of shares outstanding and thereby decreasing the market price per share. Decreasing the market price of the shares makes the shares easier to purchase for smaller investors.
(3) To emphasize that a portion of equity that had been reported as retained earnings has been permanently reinvested in the business and therefore is unavailable for cash dividends.

21.

In a share split, the number of shares is increased in the same proportion that par value is decreased. Thus, in the Fields Corporation the number of shares will increase to 40,000 =
(20,000 X 2) and the par value will decrease to $5 = ($10 ÷ 2). The effect of a split on market value is generally inversely proportional to the size of the split. In this case, the market price would fall to approximately $60 per share ($120 ÷ 2).

11-8

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

Questions Chapter 11 (Continued)
22. The different effects of a share split versus a share dividend are:
Item
Total retained earnings
Total par value (ordinary shares)
Par value per share

Share Split
No change
No change
Decrease

Share Dividend
Decrease
Increase
No Change

23. A prior period adjustment is a correction of an error in reporting income of a prior period. The correction is reported in the current year’s retained earnings statement as an adjustment of the beginning balance of retained earnings.
24. The purpose of a retained earnings restriction is to indicate that a portion of retained earnings is currently unavailable for dividends. Restrictions may result from the following causes: legal, contractual, or voluntary.
*25. The formula for computing book value per share when a corporation has only ordinary shares outstanding is:
Total
Ordinary Shareholders’
Equity

÷

Number of
Ordinary Shares
Outstanding

=

Book
Value
per Share

Book value per share represents the equity an ordinary shareholder has in the net assets of the corporation from owning one share.
*26. Par value is a legal amount per share, often set at an arbitrarily selected amount, which usually indicates the minimum amount at which a share can be issued. Book value per share represents the equity an ordinary shareholder has in the net assets of the corporation from owning one share. If the corporation has been reinvesting some of its earnings over the years, or if the share was originally issued above par, or both, the book value per share will exceed the par value. Market value is generally unrelated to par value and at best is only remotely related to book value. A share’s market value will reflect many factors, including the company’s anticipated future earnings, its expected dividend rate per share, its current financial position, the current state of the economy, and the current state of the securities markets. Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-9

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 11-1
The advantages and disadvantages of a corporation are as follows:
Advantages
Separate legal existence
Limited liability of shareholders
Transferable ownership rights
Ability to acquire capital
Continuous life
Corporation management— professional managers

Disadvantages
Corporation management— separation of ownership and management
Government regulations
Additional taxes

BRIEF EXERCISE 11-2
May 10

Cash (1,000 X $18)................................................
Share Capital—Ordinary
(1,000 X $10)...............................................
Share Premium—Ordinary
(1,000 X $8) .................................................

18,000
10,000
8,000

BRIEF EXERCISE 11-3
June 1

Cash (3,000 X ¥7) ..................................................
Share Capital—Ordinary (3,000 X ¥1).....
Share Premium—Ordinary
(3,000 X ¥6) .................................................

21,000
3,000
18,000

BRIEF EXERCISE 11-4
Land (5,000 X $16) ....................................................................
Share Capital—Ordinary (5,000 X $10)......................
Share Premium—Ordinary
(5,000 X $6) ....................................................................

11-10

Copyright © 2011 John Wiley & Sons, Inc.

80,000

Weygandt, IFRS, 1/e, Solutions Manual

50,000
30,000

(For Instructor Use Only)

BRIEF EXERCISE 11-5
July 1

Sept. 1

Treasury Shares (500 X HK$90)........................
Cash..................................................................

45,000

Cash (300 X HK$110)............................................
Treasury Shares (300 X HK$90)...............
Share Premium—Treasury
(300 X HK$20).............................................

33,000

45,000

27,000
6,000

BRIEF EXERCISE 11-6
Cash (5,000 X $120) .................................................................
Share Capital—Preference (5,000 X $100)...............
Share Premium—Preference (5,000 X $20) .............

600,000
500,000
100,000

BRIEF EXERCISE 11-7
Nov. 1 Cash Dividends (50,000 X €1/share)................
Dividends Payable .......................................

50,000

Dec. 31 Dividends Payable ................................................
Cash..................................................................

50,000

50,000

50,000

BRIEF EXERCISE 11-8
Dec. 1

31

Share Dividends (6,000 X $16) ..........................
Ordinary Shares Dividends
Distributable (6,000 X $10)....................
Share Premium—Ordinary
(6,000 X $6)..................................................

96,000

Ordinary Shares Dividends Distributable .....
Share Capital—Ordinary ............................

60,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

60,000
36,000

(For Instructor Use Only)

60,000

11-11

BRIEF EXERCISE 11-9
After
Dividend

Before
Dividend
(a)

(b)

Equity
Share Capital—Ordinary, £10 par
Share Premium—Ordinary
Retained earnings
Total equity
Outstanding shares
(1)

20,000 X (£14 – £10)

£2,000,000
—
300,000
£2,300,000

.

£2,200,000
80,000 (1)
20,000 (2)
£2,300,000

200,000
(2)

220,000

[£300,000 – (20,000 X £14)]

BRIEF EXERCISE 11-10
MOUNT INC.
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1....................................................................
Add: Net income .....................................................................
Less: Dividends ........................................................................
Balance, December 31 .............................................................

11-12

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$220,000
120,000
340,000
85,000
$255,000

(For Instructor Use Only)

BRIEF EXERCISE 11-11
OLA SMITH INC.
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1, as reported ..................................
Correction for overstatement of net income in prior period (depreciation expense error) ...........
Balance, January 1, as adjusted ..................................
Add: Net income .............................................................

$800,000
(50,000)
750,000
150,000
900,000

Less: Cash dividends.................................................... $90,000
Share dividends ..................................................
8,000
Balance, December 31....................................................

98,000
$802,000

BRIEF EXERCISE 11-12
Equity
Share capital—ordinary, €10 par value, 5,000 shares issued and 4,500 shares outstanding....................................
Share premium—ordinary.............................................................
Retained earnings............................................................................
Less: Treasury shares (500 shares) .........................................
Total equity ....................................................................

€50,000
10,000
45,000
11,000
€94,000

*BRIEF EXERCISE 11-13
Book value per share = ($810,000 ÷ 40,000) = $20.25

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-13

SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 11-1
1.
2.
3.
4.
5.

True.
True.
False. Additional government regulation is a disadvantage of the corporate form of business.
True.
False. No-par value shares are quite common today.

DO IT! 11-2
(a) Income Summary ..........................................................
Retained Earnings ................................................
(To close Income Summary and transfer net income to retained earnings)

216,000
216,000

(b) Equity
Share capital—ordinary...................................... $1,000,000
Retained earnings.................................................
216,000
Total equity................................................
$1,216,000
DO IT! 11-3
Apr. 1

Cash ..........................................................................
Share Capital—Ordinary.............................
Share Premium—Ordinary .........................
(To record issuance of 60,000 shares at CHF13 per share)

780,000

Apr. 19 Organization Expense.........................................
Share Capital—Ordinary ............................
Share Premium—Ordinary ........................
(To record issuance of 2,000 shares for attorney’s fees)

27,500

11-14

Copyright © 2011 John Wiley & Sons, Inc.

300,000
480,000

Weygandt, IFRS, 1/e, Solutions Manual

10,000
17,500

(For Instructor Use Only)

DO IT! 11-4
Aug. 1

Dec. 1

Treasury Shares.......................................................
Cash....................................................................
(To record the purchase of
2,000 shares at $60 per share)

120,000

Cash.............................................................................
Treasury Shares .............................................
Share Premium—Treasury..........................
(To record the sale of 1,200 shares at $72 per share)

86,400

120,000

72,000
14,400

DO IT! 11-5
1.

The company has not missed past dividends and the preference shares are noncumulative; thus, the preference shareholders are paid only this year’s dividend. The dividend paid to preference shareholders would be
€21,000 (3,000 X .07 X € 100). The dividend paid to ordinary shareholders would be €84,000 (€105,000 – €21,000).

2.

The preference shares are noncumulative; thus, past unpaid dividends do not have to be paid. The dividend paid to preference shareholders would be € 21,000 (3,000 X .07 X €100). The dividend paid to ordinary shareholders would be €84,000 (€105,000 – €21,000).

3.

The preference shares are cumulative; thus, dividends that have been missed in the past (dividends in arrears) must be paid. The dividend paid to preference shareholders would be €63,000 (3 X 3,000 X .07 X
€100). The dividend paid to ordinary shareholders would be €42,000
(€105,000 – €63,000).

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-15

DO IT! 11-6
(a) 1.

The share dividend amount is $3,060,000 [(400,000 X 15%) X $51].
The new balance in retained earnings is $8,940,000 ($12,000,000 –
$3,060,000).

2.

The retained earnings after the share split would be the same as it was before the split: $12,000,000.

(b) (1) and (2) The effects on the equity accounts are as follows:
Original
Balances
Share capital and share premium Retained earnings
Total equity
Shares outstanding

After
Dividend

After Split

$ 2,400,000

$ 5,460,000

$ 2,400,000

12,000,000
$14,400,000
400,000

8,940,000
$14,400,000
460,000

12,000,000
$14,400,000
800,000

Total equity remains the same under both options.
DO IT! 11-7
ALPHA CENTURI CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1, as reported ...................................
Correction for understatement of net income in prior period (depreciation error)..........
Balance, January 1, as adjusted...................................
Add: Net income ..............................................................
Less: Cash dividends......................................................
Balance, December 31......................................................

11-16

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

€3,100,000
110,000
3,210,000
1,200,000
4,410,000
150,000
€4,260,000

(For Instructor Use Only)

DO IT! 11-8
2010

(a)
Return on ordinary shareholders’ equity

($200,000 – $30,000)
($600,000 + $750,000) /2

2011
= 25.2%

($210,000 – $30,000)
($750,000 + $830,000)/2

= 22.8%
2

(b) Between 2010 and 2011, return on ordinary shareholders’ equity decreased from 25% to 23%. It is important to note that net income increased slightly (5%) during this period. This small increase did not produce an increase in the return on shareholders’ equity because the company increased it ordinary shareholders’ equity by more than 10%.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-17

SOLUTIONS TO EXERCISES
EXERCISE 11-1
1.

True.

2.

True.

3.

False. Most of the largest U.S. corporations are publicly held corporations.

4.

True.

5.

False. The net income of a corporation is taxed as a separate entity.

6.

False. Creditors have no legal claim on the personal assets of the owners of a corporation if the corporation does not pay its debts.

7.

False. The transfer of shares from one owner to another does not require the approval of either the corporation or other shareholders; it is entirely at the discretion of the shareholder.

8.

False. The board of directors of a corporation manages the corporation for the shareholders, who legally own the corporation.

9.

True.

10.

False. Corporations are subject to more regulation than partnerships or proprietorships.

EXERCISE 11-2
1.

True.

2.

False. Corporation management (separation of ownership and management ), government regulations, and additional taxes are the major disadvantages of a corporation.

3.

False. When a corporation is formed, organization costs are expensed as incurred.

4.
5.

True.
False. The number of issued shares is always less than or equal to the number of authorized shares.
False. No journal entry is required for the authorization of ordinary shares.

6.
7.

11-18

False. Publicly held corporations usually issue shares indirectly through an investment banking firm.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

EXERCISE 11-2 (Continued)
8.

True.

9.

False. The market value of ordinary shares has no relationship with the par value.

10.

False. Share capital is the total amount of cash and other assets paid in to the corporation by shareholders in exchange for shares.

EXERCISE 11-3
(a) Jan. 10
July 1

(b) Jan. 10

July 1

Cash (70,000 X Rs5)....................................
Share Capital—Ordinary ..................

350,000

Cash (40,000 X Rs8)....................................
Share Capital—Ordinary
(40,000 X Rs5)...................................
Share Premium—Ordinary
(40,000 X Rs3)...................................

320,000

Cash (70,000 X Rs5)....................................
Share Capital—Ordinary
(70,000 X Rs1)...................................
Share Premium—Ordinary
(70,000 X Rs4)...................................

350,000

Cash (40,000 X Rs8)....................................
Share Capital—Ordinary
(40,000 X Rs1)...................................
Share Premium—Ordinary
(40,000 X Rs7)...................................

320,000

350,000

200,000
120,000

70,000
280,000

40,000
280,000

EXERCISE 11-4
(a) Cash .....................................................................................
Share Capital—Ordinary (1,000 X $5) ...............
Share Premium—Ordinary ...................................

52,000

(b) Cash .....................................................................................
Share Capital—Ordinary (1,000 X $5) ...............
Share Premium—Ordinary ...................................

52,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

5,000
47,000

(For Instructor Use Only)

5,000
47,000

11-19

EXERCISE 11-4 (Continued)
(c)

(d)

(e)

Cash...................................................................................
Share Capital—Ordinary.....................................

52,000

Organization Expense..................................................
Share Capital—Ordinary (1,000 X $5).............
Share Premium—Ordinary.................................

52,000

Land ...................................................................................
Share Capital—Ordinary (1,000 X $5).............
Share Premium—Ordinary.................................

52,000

52,000

5,000
47,000

5,000
47,000

EXERCISE 11-5
Treasury Shares .........................................................................
Cash ......................................................................................

250,000

Cash (2,000 X ¥54) .....................................................................
Treasury Shares (2,000 X ¥50)......................................
Share Premium—Treasury ............................................

108,000

Cash (2,000 X ¥49) .....................................................................
Share Premium—Treasury......................................................
Treasury Shares (2,000 X ¥50)......................................

98,000
2,000

Cash (1,000 X ¥40) .....................................................................
Share Premium—Treasury
(¥8,000 – ¥2,000) ....................................................................
Retained Earnings .....................................................................
Treasury Shares (1,000 X ¥50)......................................

40,000

11-20

Copyright © 2011 John Wiley & Sons, Inc.

250,000

100,000
8,000

100,000

Weygandt, IFRS, 1/e, Solutions Manual

6,000
4,000
50,000

(For Instructor Use Only)

EXERCISE 11-6
(a)

Cash ..................................................................................... 2,100,000
Share Capital—Preference (100,000 X $20) ......
2,000,000
Share Premium—Preference .................................
100,000

(b)

Total Dividend...................................................................
Less: Preference Shares Dividend
($2,000,000 X 8%)................................................
Ordinary Shares Dividends ..........................................

(c)

$ 500,000
160,000
$ 340,000

Total Dividend...................................................................
Less: Preference Shares Dividend
[($2,000,000 X 8%) X 3] ......................................
Ordinary Shares Dividends ..........................................

$ 500,000
480,000
$ 20,000

EXERCISE 11-7
Mar.

2

June 12

July 11

Nov. 28

Organization Expense........................................
Share Capital—Ordinary
(5,000 X R$1) .............................................
Share Premium—Ordinary.......................

30,000

Cash .........................................................................
Share Capital—Ordinary
(60,000 X R$1)...........................................
Share Premium—Ordinary.......................

375,000

Cash (1,000 X R$110)..........................................
Share Capital—Preference
(1,000 X R$100).........................................
Share Premium—Preference
(1,000 X R$10).........................................

110,000

Treasury Shares....................................................
Cash ................................................................

80,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

5,000
25,000

60,000
315,000

100,000
10,000

(For Instructor Use Only)

80,000

11-21

EXERCISE 11-8
1.

2.

Land.....................................................................................
Share Capital—Ordinary (5,000 X $20)............
Share Premium—Ordinary..................................

110,000

Land (20,000 X $11) ........................................................
Share Capital—Ordinary (20,000 X $10) .........
Share Premium—Ordinary
(20,000 X $1) .........................................................

220,000

100,000
10,000

200,000
20,000

EXERCISE 11-9
(a) Mar. 1

July 1

Sept. 1

(b) Sept. 1

11-22

Treasury Shares (50,000 X £16) ...............
Cash .........................................................

800,000

Cash (10,000 X £17)......................................
Treasury Shares (10,000 X £16) ......
Share Premium—Treasury
(10,000 X £1)......................................

170,000

Cash (8,000 X £15)........................................
Share Premium—Treasury
(8,000 X £1).................................................
Treasury Shares (8,000 X £16).........

120,000

Cash (8,000 X £13)........................................
Share Premium—Treasury ........................
Retained Earnings........................................
Treasury Shares (8,000 X £16).........

104,000
10,000
14,000

Copyright © 2011 John Wiley & Sons, Inc.

800,000

160,000
10,000

8,000
128,000

Weygandt, IFRS, 1/e, Solutions Manual

128,000

(For Instructor Use Only)

EXERCISE 11-10
(a) Feb. 1

July 1

Cash (20,000 X $51)................................
Share Capital—Preference
(20,000 X $50) .............................
Share Premium—Preference
(20,000 X $1).................................

1,020,000

Cash (10,000 X $57)................................
Share Capital—Preference
(10,000 X $50) .............................
Share Premium—Preference
(10,000 X $7).................................

570,000

1,000,000
20,000

500,000
70,000

(b)
Share Capital—Preference
Date
Explanation
Feb. 1
July 1

Ref.

Share Premium—Preference
Date
Explanation
Feb. 1
July 1

Debit

Credit
1,000,000
500,000

Balance
1,000,000
1,500,000

Ref.

Debit

Credit
20,000
70,000

Balance
20,000
90,000

(c) Share capital—preference—listed first in the equity section.
Share premium—preference—listed first in a series of types of share premium. Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-23

EXERCISE 11-11
MEMO
To:
From:
Re:

President
Your name , Chief Accountant
Questions about Equity Section

Your memorandum about the equity section was received this morning.
I hope the following will answer your questions.
(a) Ordinary shares outstanding is 588,000 shares. (Issued shares 600,000 less treasury shares 12,000.)
(b) The stated value of the ordinary shares is € 2 per share. (Ordinary shares issued €1,200,000 ÷ 600,000 shares.)
(c) The par value of the preference shares is €100 per share. (Preference shares €600,000 ÷ 6,000 shares.)
(d) The dividend rate is 5%, or (€30,000 ÷ €600,000).
(e) The Retained Earnings balance is still €1,858,000. Cumulative dividends in arrears are only disclosed in the notes to the financial statements.
If I can be of further help, please contact me.

11-24

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

EXERCISE 11-12
May 2

10

15

31

Cash (10,000 X $12)..............................................
Share Capital—Ordinary
(10,000 X $10) ............................................
Share premium—Ordinary
(10,000 X $2)..............................................

120,000

Cash ..........................................................................
Share Capital—Preference
(10,000 X $50) ............................................
Share Premium—Preference
(10,000 X $10) ...........................................

600,000

Treasury Shares....................................................
Cash .................................................................

14,000

Cash (500 X $16) ...................................................
Treasury Shares (500 X $14) ....................
Share Premium—Treasury
(500 X $2) ....................................................

8,000

100,000
20,000

500,000
100,000

14,000

7,000
1,000

EXERCISE 11-13
(a) June 15

July 10

Dec. 15

Cash Dividends (110,000 X €1) ..............
Dividends Payable ............................

110,000

Dividends Payable .....................................
Cash.......................................................

110,000

Cash Dividends (112,000 X €1.20).........
Dividends Payable ............................

134,400

110,000

110,000

134,400

(b) In the retained earnings statement, dividends of € 244,400 will be deducted. In the statement of financial position, Dividends Payable of
€134,400 will be reported as a current liability.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-25

EXERCISE 11-14
1.

Share Dividends (24,000* X $18) .................................
Ordinary Share Dividends Distributable
(24,000 X $10).......................................................
Share Premium—Ordinary
(24,000 X $8) .........................................................

432,000
240,000
192,000

*[($1,000,000 ÷ $10) + 60,000] X 15%.
2.

Share Dividends (39,000* X $20) .................................
Ordinary Share Dividends Distributable
(39,000 X $5) .........................................................
Share Premium—Ordinary
(39,000 X $15).......................................................

780,000
195,000
585,000

*[($1,000,000 ÷ 5) + 60,000] X 15%.

EXERCISE 11-15

Before
Action
Equity
Share capital—ordinary
Share premium— ordinary Retained earnings
Total equity

After
Stock
Dividend

After
Stock
Split

CHF 600,000

CHF 630,000

CHF 600,000

0
900,000
CHF1,500,000

12,000 (1)
858,000 (2)
CHF1,500,000

0
900,000
CHF1,500,000

Outstanding shares
(1)

3,000 X (CHF14 – CHF10)

11-26

60,000

63,000

120,000

(2)

Copyright © 2011 John Wiley & Sons, Inc.

CHF900,000 – (3,000 X CHF14)

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

EXERCISE 11-16
1.

2.

Dec. 31

31

Cash Dividends....................................
Interest Expense.........................

50,000

Share Dividends ..................................
Dividends Payable ..............................
Ordinary Share
Dividends Distributable .......
Share Premium—Ordinary
(€16 – €10) X 1,000 .................

6,000*
10,000

50,000

10,000
6,000

*(1,000 X €16) – €10,000
3.

31

Share Capital—Ordinary...................
Retained Earnings .....................

2,000,000
2,000,000

EXERCISE 11-17
CASTLE CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1, as reported...................................
Correction for overstatement of 2010 net income (depreciation error).......................................
Balance, January 1, as adjusted...................................
Add: Net income..............................................................
Less: Cash dividends .....................................................
Share dividends ....................................................
Balance, December 31 .....................................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$550,000
(30,000)
520,000
350,000
870,000
$120,000
80,000

200,000
$670,000

(For Instructor Use Only)

11-27

EXERCISE 11-18
SAKARYA COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1, as reported .....................................
Correction for understatement of 2009 net income ......
Balance, January 1, as adjusted.....................................
Add: Net income .................................................................

TL310,000
20,000
330,000
285,000
615,000

Less: Cash dividends........................................................ TL100,0001
Share dividends ......................................................
150,0002
250,000
Balance, December 31........................................................
TL365,000
1

(200,000 X TL.50/sh)

2

(200,000 X .05 X TL15/sh)

EXERCISE 11-19

Account
Share Capital—Ordinary
Share Capital—Preference
Treasury Shares
Share Premium—Preference
Share Premium—Ordinary
Share Premium—Treasury
Retained Earnings

11-28

Copyright © 2011 John Wiley & Sons, Inc.

Share
Capital

Share
Premium

Retained
Earnings Other

X
X
X
X
X
X
X

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

EXERCISE 11-20
TIGER INC.
Statement of Financial Position (Partial)
December 31, 200X
Equity
Share capital—preference,
8%, ¥5 par value,
40,000 shares authorized,
30,000 shares issued .......................................
Share capital—ordinary, no par, ¥1 stated value, 400,000 shares authorized,
300,000 shares issued and
290,000 outstanding.........................................
Ordinary shares dividends distributable........................................................ Share premium—preference..............................
Share premium—ordinary ..................................
Retained earnings (see Note R) ........................
Less: Treasury shares
(10,000 shares)...................................................
Total equity ............................................

¥ 150,000

300,000
60,000
344,000
1,200,000
700,000
74,000
¥2,680,000

Note R: Retained earnings is restricted for plant expansion, ¥100,000.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-29

EXERCISE 11-21
KELLY GROUCUTT COMPANY
Statement of Financial Position (Partial)
December 31, 2011
Equity
Share capital—preference ..........................................
Share capital—ordinary...............................................
Share premium—preference......................................
Share premium—ordinary ..........................................
Retained earnings .........................................................
Less: Treasury shares ................................................
Total equity..................................................

$125,000
400,000
75,000
100,000
334,000*
40,000
$ 994,000

*$250,000 + $140,000 – $56,000
EXERCISE 11-22
(a)

OSASCO CORPORATION
Income Statement
For the Year Ended December 31, 2011
___________________________________________________________
Net sales..............................................................................
R$600,000
Cost of goods sold...........................................................
360,000
Gross profit ........................................................................
240,000
Operating expenses ........................................................
153,000
Income from operations.................................................
87,000
Interest expense ...............................................................
7,500
Income before income taxes ........................................
79,500
Income tax expense (30% X R$79,500) .....................
23,850
Net income..........................................................................
R$ 55,650

(b)

Net income – Preference dividends
= R$55,650 – R$15,000 = 20.3%
Average ordinary shareholders’ equity
R$200,000

11-30

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

*EXERCISE 11-23
ALUMINUM COMPANY OF AMERICA
(a) Equity (in millions of dollars)
Share capital—preference, $100 par value,
$3.75,cumulative, 557,740 shares authorized,
557,649 shares issued and 546,024 shares outstanding ..............................................................
Share capital—ordinary, $1 par value,
1,800,000,000 shares authorized,
924,600,000 issued and 844,800,000 shares outstanding...............................................................
Share premium ...........................................................................
Retained earnings .....................................................................
Less: Treasury shares ............................................................
Total equity............................................................

$

56

925
6,101
7,428
2,828
$11,682

(b) Total equity...........................................................................................
Less: Preference shares equity (par value)..............................
Ordinary shares equity .....................................................................

$11,682
56
$11,626

Ordinary shares outstanding (in millions) .................................

844.8

Book value per share ($11,626 ÷ 844.8) ......................................

$13.76

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-31

*EXERCISE 11-24

Total equity
Less: Preference shares equity
Par value
Call price (10,000 X £60)
Dividends in arrears (10,000 X £5)
Ordinary shares equity
Ordinary shares outstanding
Book value per share

(a)
£3,000,000

(b)
£3,000,000

(£500,000)

£2,500,000

(600,000)
(50,000)
£2,350,000

200,000

200,000

£12.50

£11.75

*EXERCISE 11-25
(a) 1.
2.

Book value before the share dividend was $7.50 ($300,000 ÷ 40,000).
Book value after the share dividend is $6.82 ($300,000 ÷ 44,000).

(b) Share capital—ordinary
Balance before dividend.........................................................
Dividend shares (4,000 X $5).................................................
New balance.......................................................................

$200,000
20,000
$220,000

Share premium—ordinary
Balance before dividend.........................................................
Excess over par of shares issued (4,000 X $10).............
New balance.......................................................................

$ 25,000
40,000
$ 65,000

Retained earnings
Balance before dividend.........................................................
Dividend (4,000 X $15).............................................................
New balance.......................................................................

$ 75,000
60,000
$ 15,000

11-32

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

SOLUTIONS TO PROBLEMS
PROBLEM 11-1A

(a) Jan. 10

Cash (100,000 X HK$30) ............................ 3,000,000
Share Capital—Ordinary
(100,000 X HK$20) ...........................
2,000,000
Share Premium—Ordinary
(100,000 X HK$10) ...........................
1,000,000

Mar. 1

Cash (10,000 X HK$550) ............................ 5,500,000
Share Capital—Preference
(10,000 X HK$500) ...........................
5,000,000
Share Premium—Preference
(10,000 X HK$50) ............................
500,000

Apr. 1

Land .................................................................
Share Capital—Ordinary
(25,000 X HK$20) .............................
Share Premium—Ordinary
(HK$850,000 – HK$500,000) .........

850,000
500,000
350,000

May 1

Cash (75,000 X HK$40)............................... 3,000,000
Share Capital—Ordinary
(75,000 X HK$20) .............................
1,500,000
Share Premium—Ordinary
(75,000 X HK$20) .............................
1,500,000

Aug. 1

Organization Expense................................
Share Capital—Ordinary
(10,000 X HK$20) .............................
Share Premium—Ordinary
(HK$500,000 – HK$200,000) .........

500,000

Cash (5,000 X HK$60).................................
Share Capital—Ordinary
(5,000 X HK$20)................................
Share Premium—Ordinary
(5,000 X HK$40)................................

300,000

Sept. 1

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

200,000
300,000

100,000
200,000

(For Instructor Use Only)

11-33

PROBLEM 11-1A (Continued)
Nov. 1

Cash (2,000 X HK$580) ................................ 1,160,000
Share Capital—Preference
(2,000 X HK$500) ...............................
1,000,000
Share Premium—Preference
(2,000 X HK$80) ................................
160,000

(b)
Share Capital—Preference
Date
Explanation
Mar. 1
Nov. 1

Ref.
J1
J1

Debit

Credit
5,000,000
1,000,000

Balance
5,000,000
6,000,000

Share Capital—Ordinary
Date
Explanation
Jan. 10
Apr. 1
May 1
Aug. 1
Sept. 1

Ref.
J1
J1
J1
J1
J1

Debit

Credit
2,000,000
500,000
1,500,000
200,000
100,000

Balance
2,000,000
2,500,000
4,000,000
4,200,000
4,300,000

Share Premium—Preference
Date
Explanation
Mar. 1
Nov. 1

Ref.
J1
J1

Debit

Credit
500,000
160,000

Balance
500,000
660,000

Share Premium—Ordinary
Date
Explanation
Jan. 10
Apr. 1
May 1
Aug. 1
Sept. 1

Ref.
J1
J1
J1
J1
J1

Debit

Credit
1,000,000
350,000
1,500,000
300,000
200,000

Balance
1,000,000
1,350,000
2,850,000
3,150,000
3,350,000

11-34

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-1A (Continued)
(c)

GAO CORPORATION
Equity
Share capital—preference
6%, HK$500 par value,
20,000 shares authorized,
12,000 shares issued .................................
Share capital—ordinary, no par,
HK$20 stated value,
500,000 shares authorized,
215,000 shares issued...............................
Share premium—preference........................
Share premium—ordinary ............................
Total share capital .........................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

HK$6,000,000

4,300,000
660,000
3,350,000
HK$14,310,000

(For Instructor Use Only)

11-35

PROBLEM 11-2A

(a) Mar. 1

June 1

Sept. 1

Dec. 1

31

Treasury Shares (5,000 X $7) ......................
Cash............................................................

35,000

Cash (1,000 X $10) ..........................................
Treasury Shares (1,000 X $7) .............
Share Premium—Treasury
(1,000 X $3)............................................

10,000

Cash (2,000 X $9).............................................
Treasury Shares (2,000 X $7) .............
Share Premium—Treasury
(2,000 X $2)............................................

18,000

Cash (1,000 X $5).............................................
Share Premium— Treasury
(1,000 X $2) ...................................................
Treasury Shares (1,000 X $7) .............

5,000

Income Summary ............................................
Retained Earnings .................................

60,000

35,000

7,000
3,000

14,000
4,000

2,000
7,000

60,000

(b)
Share Premium—Treasury
Date
Explanation
June 1
Sept. 1
Dec. 1

Ref.
J12
J12
J12

Treasury Shares
Date
Explanation
Mar. 1
June 1
Sept. 1
Dec. 1

Ref.
J12
J12
J12
J12

11-36

Copyright © 2011 John Wiley & Sons, Inc.

Debit

Credit
3,000
4,000

Balance
3,000
7,000
5,000

Credit

Balance
35,000
28,000
14,000
7,000

2,000

Debit
35,000

7,000
14,000
7,000

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-2A (Continued)
Retained Earnings
Date
Explanation
Jan. 1
Balance
Dec. 31

(c)

Ref.

Debit

J12

Credit
60,000

Balance
100,000
160,000

GREEVE CORPORATION
Equity
Share capital—ordinary, $1 par,
400,000 shares issued and
399,000 outstanding...................................
Share premium—ordinary ............................
Share premium—treasury.............................
Retained earnings ...........................................
Less:
Treasury shares
(1,000 shares)..................................
Total equity .............................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$ 400,000
500,000
5,000
160,000
7,000
$1,058,000

(For Instructor Use Only)

11-37

PROBLEM 11-3A

(a) Feb.

1

Mar. 20

June 14

Sept. 3

Dec. 31

Cash ................................................................
Share Capital—Ordinary
(3,000 X €5) .......................................
Share Premium—Ordinary .............
Treasury Shares
(1,500 X €8) ...............................................
Cash .......................................................

25,000
15,000
10,000

12,000
12,000

Cash ................................................................
Treasury Shares
(4,000 X €8) ......................................
Share Premium—Treasury .............

36,000

Patent..............................................................
Share Capital—Ordinary
(2,000 X €5) .......................................
Share Premium—Ordinary .............

17,000

Income Summary........................................
Retained Earnings.............................

340,000

32,000
4,000

10,000
7,000

340,000

(b)
Share Capital—Preference
Date
Explanation
Jan. 1 Balance
Share Capital—Ordinary
Date
Explanation
Jan. 1 Balance
Feb. 1
Sept. 3

11-38

Copyright © 2011 John Wiley & Sons, Inc.

Ref.

Debit

Credit

Balance
300,000

Ref.

Debit

Credit

Balance
1,000,000
1,015,000
1,025,000

J1
J1

15,000
10,000

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-3A (Continued)
Share Premium—Preference
Date
Explanation
Jan.
1
Balance

Share Premium—Ordinary
Date
Explanation
Jan.
1
Balance
Feb. 1
Sept. 3

Retained Earnings
Date
Explanation
Jan.
1
Balance
Dec. 31

Treasury Shares
Date
Explanation
Jan.
1
Balance
Mar. 20
June 14

Share Premium—Treasury
Date
Explanation
June 14

Copyright © 2011 John Wiley & Sons, Inc.

Ref.

Debit

Credit

Balance
20,000

Ref.

Debit

Credit

Balance
425,000
435,000
442,000

J1
J1

Ref.

10,000
7,000

Debit

J1

Credit
340,000

Ref.

Debit

J1
J1

12,000

Ref.
J1

Debit

32,000

Weygandt, IFRS, 1/e, Solutions Manual

Credit

Balance
488,000
828,000

Balance
40,000
52,000
20,000

Credit
4,000

Balance
4,000

(For Instructor Use Only)

11-39

PROBLEM 11-3A (Continued)
(c)

JAJOO CORPORATION
Equity
Share capital—preference, 10%,
€100 par value, noncumulative,
5,000 shares authorized,
3,000 shares issued and outstanding ....................................................
Share capital—ordinary, no par,
€5 stated value,
300,000 shares authorized,
205,000 shares issued and 202,500 shares outstanding ....................................................
Share premium—preference .........................
Share premium—ordinary..............................
Share premium—treasury..............................
Retained earnings.....................................................
Less: Treasury shares
(2,500 shares)................................................
Total equity .........................................

11-40

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

€ 300,000

1,025,000
20,000
442,000
4,000
828,000
20,000
€2,599,000

(For Instructor Use Only)

PROBLEM 11-4A

(a)

Feb. 1 Cash Dividends (60,000 X $1)
60,000
Dividends Payable .....................................

60,000

Mar. 1 Dividends Payable ............................................. 60,000
Cash ..............................................................

60,000

Apr. 1 Memo—Five-for-one share split increases number of shares to
300,000 (60,000 X 5) and reduces par value to $4 per share.
July 1 Share Dividends (15,000* X $7) ..................... 105,000
Ordinary Share Dividends
Distributable (15,000 X $4)................
Share Premium—Ordinary
($15,000 X $3)..........................................

60,000
45,000

*300,000 shares X .05
31 Ordinary Share Dividends Distributable ........ 60,000
Share Capital—Ordinary.........................

60,000

Dec. 1 Cash Dividends (315,000 X $.50)................... 157,500
Dividends Payable .....................................

157,500

31 Income Summary ............................................... 380,000
Retained Earnings.......................................

380,000

31 Retained Earnings ............................................. 217,500
Cash Dividends ............................................

217,500

31 Retained Earnings ............................................. 105,000
Share Dividends...........................................

105,000

(b)
Share Capital—Ordinary
Date
Explanation
Jan. 1 Balance
Apr. 1 5 for 1 split—new par $4
July 31
Copyright © 2011 John Wiley & Sons, Inc.

Ref.

Debit

Weygandt, IFRS, 1/e, Solutions Manual

Credit

60,000

Balance
1,200,000
1,200,000
1,260,000

(For Instructor Use Only)

11-41

PROBLEM 11-4A (Continued)
Share Premium—Ordinary
Date
Explanation
Jan. 1 Balance
July 1
Retained Earnings
Date
Explanation
Jan. 1 Balance
Dec. 31 Cash dividends
Dec. 31 Share dividends
Dec. 31 Net income

Ref.

Share Dividends
Date
Explanation
July 1
Dec. 31

11-42

Copyright © 2011 John Wiley & Sons, Inc.

Credit
45,000

Ref.

Debit

Credit

217,500
105,000
380,000

Ordinary Share Dividends Distributable
Date
Explanation
Ref.
July 1
31

Cash Dividends
Date
Explanation
Feb. 1
Dec. 1
Dec. 31

Debit

Ref.

Debit

Credit
60,000

60,000

Debit
60,000
157,500

Credit

217,500

Ref.

Debit
105,000

Credit
105,000

Weygandt, IFRS, 1/e, Solutions Manual

Balance
200,000
245,000

Balance
500,000
282,500
177,500
557,500

Balance
60,000
0

Balance
60,000
217,500
0

Balance
105,000
0

(For Instructor Use Only)

PROBLEM 11-4A (Continued)
(c)

GALACTICA CORPORATION
Equity
Share capital—ordinary, $4 par value, 315,000 shares issued and outstanding ......................................
Share premium—ordinary ...................................................
Retained earnings...................................................................
Total equity ...............................................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$1,260,000
245,000
557,500
$2,062,500

(For Instructor Use Only)

11-43

PROBLEM 11-5A

(a)

Retained Earnings
Dec. 31 Cash Dividend
600,000 Jan. 1 Balance
Dec. 31 Share Dividend *280,000 Dec. 31
Dec. 31 Balance

2,450,000
795,000
2,365,000

*(400,000 X .10) X €7
(b)

NAKONA CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1 ...............................................
Add: Net income .................................................
Less: Cash dividends.........................................
Share dividends .......................................
Balance, December 31.........................................

(c)

€2,450,000
795,000
3,245,000
€600,000
280,000

NAKONA CORPORATION
Partial Statement of Financial Position
December 31, 2011
Equity
Share capital—preference, 8%,
€100 par value, noncumulative, callable at €125, 20,000 shares authorized, 10,000 shares issued and outstanding .....................................................
Share capital—ordinary, no par, €5 stated value, 600,000 shares authorized, 400,000 shares issued and outstanding .........................
Ordinary shares dividends distributable ...............................................

11-44

880,000
€2,365,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

€1,000,000

2,000,000
200,000

(For Instructor Use Only)

PROBLEM 11-5A (Continued)
NAKONA CORPORATION (Continued)
Share premium—preference......................
Share Premium—ordinary ..........................
Retained earnings (see Note A)................
Total equity......................................

200,000
1,100,000
2,365,000
€6,865,000

Note A: Retained earnings is restricted for plant expansion, €100,000.

(d)

€795,000 – €80,000*
= €2.20
325,000
*10,000 X €8 = €80,000

(e) Total dividend .....................................................................................
Allocated to preference shares—current year only...............
Remainder to ordinary shares.......................................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

€600,000
80,000
€520,000

(For Instructor Use Only)

11-45

PROBLEM 11-6A

(a) 1.

2.

3.

4.

(b)

Land......................................................................
Share Capital—Preference
(2,400 X $100)........................................
Share Premium—Preference...............

296,000

Cash ($2,000,000 + $5,700,000) ...................
Share Capital—Ordinary
(400,000 X $5)........................................
Share Premium—Ordinary ...................

7,700,000

Treasury Shares—Ordinary
(1,500 X $22) ..................................................
Cash.............................................................
Cash (500 X $28)...............................................
Treasury Shares—Ordinary
(500 X $22).............................................
Share Premium—Treasury
(500 X $6)...............................................

240,000
56,000

2,000,000
5,700,000

33,000
33,000
14,000

3,000

ARNOLD CORPORATION
Equity
Share capital—preference 8%, $100 par value, noncumulative,
40,000 shares authorized,
2,400 shares issued and outstanding ....................................................
Share capital—ordinary, no par, $5.00 stated value, 2,000,000 shares authorized, 400,000 shares issued, and 399,000 outstanding ....................................................

11-46

11,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$ 240,000

2,000,000

(For Instructor Use Only)

PROBLEM 11-6A (Continued)
ARNOLD CORPORATION (Continued)
Share premium—preference......................
Share premium—ordinary ..........................
Share premium—treasury ..........................
Retained earnings .........................................
Less: Treasury shares
(1,000 shares) ....................................
Total equity.................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

56,000
5,700,000
3,000
560,000
22,000
$8,537,000

(For Instructor Use Only)

11-47

PROBLEM 11-7A

(a) Jan. 15

Feb. 15

Apr. 15

May 15

Cash Dividends (90,000 X £1).................
Dividends Payable.............................

90,000

Dividends Payable......................................
Cash .......................................................

90,000

Share Dividends (9,000 X £15) ...............
Ordinary Share Dividends
Distributable (9,000 X £10) .........
Share Premium—Ordinary
(9,000 X £5) .......................................

135,000

Ordinary Share Dividends
Distributable ............................................
Share Capital—Ordinary
(9,000 X £10).....................................

90,000

90,000

90,000
45,000

90,000
90,000

July

1

Memo—two-for-one share split increases the number of shares outstanding to 198,000, or
(99,000 X 2) and reduces the par value to £5 per share.

Dec.

1

Cash Dividends (198,000 X £.50) ...........
Dividends Payable.............................

99,000

Income Summary........................................
Retained Earnings.............................

250,000

Retained Earnings......................................
Cash Dividends ..................................

189,000

Retained Earnings......................................
Share Dividends.................................

135,000

31

31

31

11-48

Copyright © 2011 John Wiley & Sons, Inc.

99,000

250,000

189,000

Weygandt, IFRS, 1/e, Solutions Manual

135,000

(For Instructor Use Only)

PROBLEM 11-7A (Continued)
(b)
Share Capital—Ordinary
Date
Jan.
1
May 15
July
1

Explanation
Balance

Ref.

Debit

Credit

Balance
900,000
990,000

90,000
2 for 1 share split— new par value = £5

Share Premium—Ordinary
Date
Jan.
1
Apr. 15

Explanation
Balance

Ref.

Debit

Credit
45,000

Balance
200,000
245,000

Retained Earnings
Date
Jan.
1
Dec. 31
Apr. 15
31

Explanation
Balance
Cash dividends
Share dividends
Net income

Cash Dividends
Date
Explanation
Jan. 1
Dec. 1
Dec. 31
Share Dividends
Date
Explanation
Apr. 15
Dec. 31

Ref.

Debit

Credit

189,000
135,000
250,000

Ref.

Debit
90,000
99,000

Credit

189,000

Ref.

Debit
135,000

Credit
135,000

Balance
540,000
351,000
216,000
466,000

Balance
90,000
189,000
0

Balance
135,000
0

Ordinary Share Dividends Distributable
Date
Apr. 15
May 15

Explanation

Copyright © 2011 John Wiley & Sons, Inc.

Ref.

Debit
90,000

Weygandt, IFRS, 1/e, Solutions Manual

Credit
90,000

Balance
90,000
0

(For Instructor Use Only)

11-49

PROBLEM 11-7A (Continued)
(c)

SNIDER CORPORATION
Statement of Financial Position (Partial)
December 31, 2011
Equity
Share capital—ordinary, £5 par value, 198,000 shares issued and outstanding ...................................
Share premium—ordinary..................................................
Retained earnings.................................................................
Total equity............................................................

11-50

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

£ 990,000
245,000
466,000
£1,701,000

(For Instructor Use Only)

PROBLEM 11-8A

(a)

MCGRATH CORPORATION
Equity
Share capital—preference, 8%, $100 par value, noncumulative,
4,000 shares issued and outstanding ...........................................
Share capital—ordinary, no par, $10 stated value, 150,000 shares issued, and 142,000 outstanding.................................................... Share premium—preference.........................
Share premium—ordinary .............................
Share premium—treasury .............................
Retained earnings ............................................
Less: Treasury shares
(8,000 shares) .......................................
Total equity.................................

$ 400,000

1,500,000
288,400
690,000
6,000
776,000
88,000
$3,572,400

*(b) The book value of the ordinary shares is $22.06 computed as follows:
Total equity..................................................................................
Less: Preference shares equity
Call price ($110 X 4,000)..........................................
Ordinary shares equity ............................................................

$3,572,400
440,000
$3,132,400

Ordinary shares outstanding.................................................

142,000

Book value per share ($3,132,400 ÷ 142,000) ...................

$22.06

Note: No preference dividends are assigned to the preference shares equity because the preference shares are noncumulative.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-51

*PROBLEM 11-9A

HAMBLIN INC.
Statement of Changes in Equity
For the Year Ending December 31, 2011
(in thousands, except shares)

Ordinary
Shares
Balances, Jan. 1
Issued 50,000 shares for share dividend
Issued 30,000 shares for cash
Purchased 25,000 treasury shares
Declared cash dividend Sold 8,000 treasury shares Net income for year
Balances, Dec. 31

11-52

Ordinary
Share
Share
Dividends Treasury
Premium Distributable Shares

CHF1,000

CHF500

100
60

CHF100

CHF 0

Retained
Earnings
CHF 600

(100)
90

150
(150)
(111)
48

CHF590

Copyright © 2011 John Wiley & Sons, Inc.

CHF 2,200
0

(150)

CHF1,160

Total

CHF 0

CHF(102)

360
CHF849

Weygandt, IFRS, 1/e, Solutions Manual

(111)
48
360
CHF2,497

(For Instructor Use Only)

PROBLEM 11-1B

(a) Jan. 10

Mar. 1

Apr. 1

May 1

Aug. 1

Sept. 1

Cash (80,000 X $4).......................................
Share Capital—Ordinary
(80,000 X $3)......................................
Share Premium—Ordinary
(80,000 X $1)......................................

320,000

Cash (5,000 X $105).....................................
Share Capital—Preference
(5,000 X $100) ...................................
Share Premium—Preference
(5,000 X $5) .......................................

525,000

Land .................................................................
Share Capital—Ordinary
(24,000 X $3)......................................
Share Premium—Ordinary
($85,000 – $72,000)..........................

85,000

Cash (80,000 X $4.50) .................................
Share Capital—Ordinary
(80,000 X $3)......................................
Share Premium—Ordinary
(80,000 X $1.50) ................................

360,000

Organization Expense................................
Share Capital—Ordinary
(10,000 X $3)......................................
Share Premium—Ordinary
($40,000 – $30,000)..........................

40,000

Cash (10,000 X $5).......................................
Share Capital—Ordinary
(10,000 X $3)......................................
Share Premium—Ordinary
(10,000 X $2)......................................

50,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

240,000
80,000

500,000
25,000

72,000
13,000

240,000
120,000

30,000
10,000

(For Instructor Use Only)

30,000
20,000

11-53

PROBLEM 11-1B (Continued)
Nov. 1

Cash (1,000 X $109) ......................................
Share Capital—Preference
(1,000 X $100) .....................................
Share Premium—Preference
(1,000 X $9).........................................

109,000
100,000
9,000

(b)
Share Capital—Preference
Date
Explanation
Mar. 1
Nov. 1

Ref.
J5
J5

Debit

Credit
500,000
100,000

Balance
500,000
600,000

Share Capital—Ordinary
Date
Explanation
Jan. 10
Apr. 1
May 1
Aug. 1
Sept. 1

Ref.
J5
J5
J5
J5
J5

Debit

Credit
240,000
72,000
240,000
30,000
30,000

Balance
240,000
312,000
552,000
582,000
612,000

Share Premium—Preference
Date
Explanation
Mar. 1
Nov. 1

Ref.
J5
J5

Debit

Credit
25,000
9,000

Balance
25,000
34,000

Share Premium—Ordinary
Date
Explanation
Jan. 10
Apr. 1
May 1
Aug. 1
Sept. 1

Ref.
J5
J5
J5
J5
J5

Debit

Credit
80,000
13,000
120,000
10,000
20,000

Balance
80,000
93,000
213,000
223,000
243,000

11-54

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-1B (Continued)
(c)

KEELER CORPORATION
Equity
Share capital—preference, 8%,
$100 par value, 10,000 shares authorized, 6,000 shares issued.............................................................. Share capital—ordinary, no par, $3 stated value, 500,000 shares authorized, 204,000 shares issued.............................................................. Share premium—preference........................
Share premium—ordinary ............................
Total share capital .........................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$ 600,000

612,000
34,000
243,000
$1,489,000

(For Instructor Use Only)

11-55

PROBLEM 11-2B

(a) Mar. 1

June 1

Sept. 1

Dec. 1

31

Treasury Shares (5,000 X £8) ......................
Cash............................................................

40,000

Cash (1,000 X £12) ..........................................
Treasury Shares (1,000 X £8) .............
Share Premium—Treasury
(1,000 X £4)............................................

12,000

Cash (2,000 X £10) ..........................................
Treasury Shares (2,000 X £8) .............
Share Premium—Treasury
(2,000 X £2)............................................

20,000

Cash (1,000 X £6).............................................
Share Premium—Treasury
(1,000 X £2) ...................................................
Treasury Shares (1,000 X £8) .............

6,000

Income Summary ............................................
Retained Earnings .................................

40,000

40,000

8,000
4,000

16,000
4,000

2,000
8,000

40,000

(b)
Share Premium—Treasury
Date
Explanation
June 1
Sept. 1
Dec. 1

Ref.
J10
J10
J10

Treasury Shares
Date
Explanation
Mar. 1
June 1
Sept. 1
Dec. 1

Ref.
J10
J10
J10
J10

11-56

Copyright © 2011 John Wiley & Sons, Inc.

Debit

Credit
4,000
4,000

Balance
4,000
8,000
6,000

Credit

Balance
40,000
32,000
16,000
8,000

2,000

Debit
40,000

8,000
16,000
8,000

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-2B (Continued)
Retained Earnings
Date
Explanation
Jan. 1 Balance
Dec. 31

(c)

Ref.

Debit

Credit

J10

40,000

Balance
100,000
140,000

GOLDBERG CORPORATION
Equity
Share capital—ordinary, £5 par,
100,000 shares issued and
99,000 outstanding .....................................
Share premium—ordinary ............................
Share premium—treasury.............................
Retained earnings ...........................................
Less: Treasury shares
(1,000 shares) ......................................
Total equity .............................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

£500,000
200,000
6,000
140,000
8,000
£838,000

(For Instructor Use Only)

11-57

PROBLEM 11-3B

(a) Feb. 1

Apr. 14

Sept. 3

Nov. 10

Dec. 31

Cash .................................................................
Share Capital—Ordinary
(25,000 X $1)......................................
Share Premium—Ordinary
($100,000 – $25,000) .......................

100,000

Cash .................................................................
Treasury Shares
(6,000 X $4) .......................................
Share Premium—Treasury
($33,000 – $24,000).........................

33,000

Patent...............................................................
Share Capital—Ordinary
(5,000 X $1) ........................................
Share Premium—Ordinary
($30,000 – $5,000) ............................

30,000

Treasury Shares...........................................
Cash ........................................................

6,000

Income Summary.........................................
Retained Earnings ..............................

452,000

25,000
75,000

24,000
9,000

5,000
25,000

6,000

452,000

(b)
Share Capital—Preference
Date
Explanation
Jan. 1 Balance

Ref.

Debit

Credit

Balance
400,000

Ref.

Debit

Credit

Balance
1,000,000
1,025,000
1,030,000

Share Capital—Ordinary
Date
Jan. 1
Feb. 1
Sept. 3

11-58

Explanation
Balance

J5
J5

Copyright © 2011 John Wiley & Sons, Inc.

25,000
5,000

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-3B (Continued)
Share Premium—Preference
Date
Explanation
Jan. 1 Balance

Share Premium—Ordinary
Date
Explanation
Jan. 1 Balance
Feb. 1
Sept. 3

Retained Earnings
Date
Explanation
Jan. 1 Balance
Dec. 31

Treasury Shares
Date
Explanation
Jan. 1 Balance
Apr. 14
Nov. 10

Share Premium—Treasury
Date
Explanation
Apr. 14

Copyright © 2011 John Wiley & Sons, Inc.

Ref.

Debit

Credit

Balance
100,000

Ref.

Debit

Credit

Balance
1,450,000
1,525,000
1,550,000

J5
J5

Ref.

75,000
25,000

Debit

J5

Ref.
J5
J5

Ref.
J5

Credit
452,000

Debit

Credit
24,000

6,000

Debit

Weygandt, IFRS, 1/e, Solutions Manual

Credit
9,000

Balance
1,816,000
2,268,000

Balance
40,000
16,000
22,000

Balance
9,000

(For Instructor Use Only)

11-59

PROBLEM 11-3B (Continued)
(c)

PORT CORPORATION
Equity
Share capital—preference, 8%,
$50 par value, cumulative,
10,000 shares authorized,
8,000 shares issued and outstanding ...................................................
Share capital—ordinary, no par,
$1 stated value,
2,000,000 shares authorized,
1,030,000 shares issued and 1,025,000 shares outstanding ...................................................
Share premium—preference ........................
Share premium—ordinary............................
Share premium—treasury.............................
Retained earnings (see Note X)...................
Less: Treasury shares
(5,000 shares).......................................
Total equity ................................

$ 400,000

1,030,000
100,000
1,550,000
9,000
2,268,000
22,000
$5,335,000

Note X: Dividends on preference shares totaling $32,000 [8,000 X
(8% X $50)] are in arrears.

11-60

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-4B

(a) Feb.

Mar.

1

1

Cash Dividends (75,000 X €1).................
Dividends Payable ............................

75,000

Dividends Payable .....................................
Cash.......................................................

75,000

Apr.

1

1

Share Dividends (15,000 X €13) .............
Ordinary Share Dividends
Distributable (15,000 X €10).......
Share Premium—Ordinary
(15,000 X €3) ....................................

75,000

Memo—two-for-one share split increases number of shares to
150,000 = (75,000 X 2) and reduces par value to €10 per share.

July

75,000

31

Dec.

1

31

31

31

Ordinary Share Dividends
Distributable............................................
Share Capital—Ordinary .................

195,000
150,000
45,000

150,000
150,000

Cash Dividends (165,000 X €.50)...........
Dividends Payable ............................

82,500

Income Summary .......................................
Retained Earnings ............................

350,000

Retained Earnings .....................................
Cash Dividends..................................

157,500

Retained Earnings .....................................
Share Dividends ................................

195,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

82,500

350,000

157,500

195,000

(For Instructor Use Only)

11-61

PROBLEM 11-4B (Continued)
(b)
Share Capital—Ordinary
Date
Jan.
Apr.
July

1
1

Explanation
Balance
2 for 1 split—new par $10

Ref.

Debit

31

Credit

150,000

Balance
1,500,000
1,500,000
1,650,000

Share Premium—Ordinary
Date
Jan.
July

1
1

Explanation
Balance

Ref.

Debit

Credit
45,000

Balance
200,000
245,000

Retained Earnings
Date
Jan.
1
Dec. 31
July 31
31

Explanation
Balance
Cash dividends
Share dividends
Net income

Cash Dividends
Date
Explanation
Feb. 1
Dec. 1
31

Ref.

Debit

Credit

157,500
195,000
350,000

Ref.

Debit
75,000
82,500

Credit

Balance
600,000
442,500
247,500
597,500

Balance
75,000
157,500
0

157,500

Share Dividends
Date
July
1
Dec. 31

Explanation

Ref.

Debit
195,000

Credit
195,000

Balance
195,000
0

Ordinary Shares Dividends Distributable
Date
July

11-62

Explanation
1
31

Ref.

Debit

Credit
150,000

150,000
Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

Balance
150,000
0

(For Instructor Use Only)

PROBLEM 11-4B (Continued)
(c)

BELGIUM CORPORATION
Statement of Financial Position (Partial)
December 31, 2011
Equity
Share capital—ordinary, €10 par value, 165,000 shares issued and outstanding....................................
Share premium—ordinary ..................................................
Retained earnings .................................................................
Total equity.................................................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

€1,650,000
245,000
597,500
€2,492,500

(For Instructor Use Only)

11-63

PROBLEM 11-5B

(a)
BRADSTROM COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1, as reported ...........................
Correction for understatement of net income in 2010 (depreciation error) ................
Balance, January 1, as adjusted ...........................
Add: Net income ......................................................
Less: Cash dividends—ordinary .........................
Cash dividends—preference ....................
Balance, December 31..............................................

$ 900,000
80,000
980,000
3,600,000
4,580,000
$1,485,000*
700,000

2,185,000
$2,395,000

*(1,500,000 – 15,000) X $1

11-64

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 11-5B (Continued)

(b)

BRADSTROM COMPANY
Partial Statement of Financial Position
December 31, 2011
Equity
Share capital—preference, $100 par value, 7%, cumulative,
100,000 shares issued and outstanding ............................................
Share capital—ordinary, $10 par value,
1,500,000 shares issued and 1,485,000 shares outstanding..................................................... Share premium—preference..........................
Share premium—ordinary ..............................
Retained earnings .............................................
Less: Treasury shares
(15,000 shares)......................................
Total equity .....................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$10,000,000

15,000,000
500,000
1,500,000
2,395,000
240,000
$29,155,000

(For Instructor Use Only)

11-65

PROBLEM 11-6B

(a)

Retained Earnings
Sept. 1 Prior Per. Adj.
63,000 Jan. 1 Balance
Dec. 31 Cash Dividends 250,000 Dec. 31 Net Income
Dec. 31 Share Dividends *450,000
Dec. 31 Balance

1,170,000
495,000
902,000

*(250,000 X .10) X R$18

(b)

FORTALEZA CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2011
Balance, January 1, as reported ......................
Correction of overstatement of 2010 net income because of understatement of depreciation .......................................................
Balance, January 1, as adjusted ......................
Add: Net income .................................................
Less: Cash dividends.........................................
Share dividends .......................................
Balance, December 31.........................................

(c)

R$1,170,000

(63,000)
1,107,000
495,000
1,602,000
R$250,000
450,000

FORTALEZA CORPORATION
Partial Statement of Financial Position
December 31, 2011
Equity
Share capital—preference
8%, R$50 par value, cumulative,
20,000 shares authorized,
15,000 shares issued and outstanding .................................................

11-66

700,000
R$ 902,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

R$ 750,000

(For Instructor Use Only)

PROBLEM 11-6B (Continued)
FORTALEZA CORPORATION (Continued)
Share Capital—Ordinary, R$10 par value, 500,000 shares authorized,
250,000 shares issued and outstanding................................................. Ordinary shares dividends distributable................................................ Share premium—preference......................
Share premium—ordinary ..........................
Retained earnings (see Note X) ................
Total equity......................................

R$2,500,000
250,000
250,000
400,000
902,000
R$5,052,000

Note X: Retained earnings is restricted for plant expansion,
R$200,000.

(d)

R$495,000 –R$60,000 * = R$1.81
240,000
*15,000 X R$4 = R$60,000

(e) Total cash dividend......................................................
Allocated to preference shares
Dividend in arrears—2010
(15,000 X R$4)................................................... R$60,000
2011 dividend........................................................
60,000
Remainder to ordinary shares..................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

R$250,000

120,000
R$130,000

(For Instructor Use Only)

11-67

PROBLEM 11-7B

(a)

RIZZO CORPORATION
Equity
Share capital—preference
8%, $50 par noncumulative,
16,000 shares issued..................................
Share capital—ordinary, no par,
$5 stated value, 500,000 shares issued and 490,000 outstanding ...................................................
Share premium—preference .........................
Share premium—ordinary..............................
Share premium—treasury.............................
Retained earnings............................................
Less: Treasury shares
(10,000 shares) ....................................
Total equity ................................

$ 800,000

2,500,000
679,000
1,600,000
10,000
1,448,000
130,000
$6,907,000

*(b) The book value of the ordinary shares is $12.14 computed as follows:
Total equity ..................................................................................
Less: Preference shares equity
Call price (16,000 X $60) .............................................
Ordinary shares equity.............................................................

$6,907,000
960,000
$5,947,000

Ordinary shares outstanding .................................................

490,000

Book value per share ($5,947,000 ÷ 490,000) ...................

$12.14

Note: No preference dividends are assigned to the preference shares equity because the preference shares are noncumulative.

11-68

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

COMPREHENSIVE PROBLEM SOLUTION

(a)

1. Cash ............................................................................
Share Capital—Preference..........................
Share Premium—Preference......................

33,000

2. Cash ............................................................................
Share Capital—Ordinary..............................
Share Premium—Ordinary..........................

21,000

3. Accounts Receivable.............................................
Service Revenue.............................................

280,000

4. Cash ............................................................................
Unearned Service Revenue ........................

36,000

5. Cash ............................................................................
Accounts Receivable ....................................

267,000

6. Supplies .....................................................................
Account Payable ............................................

35,100

7. Accounts Payable...................................................
Cash....................................................................

32,200

8. Treasury Shares ......................................................
Cash....................................................................

15,200

9. Other Operating Expenses ..................................
Cash....................................................................

188,200

10. Cash Dividends (£2,100 + £10,200*)..................
Dividends Payable .........................................

12,300

11. Allowance for Doubtful Accounts .....................
Accounts Receivable ....................................

1,300

30,000
3,000

9,000
12,000

280,000

36,000

267,000

35,100

32,200
15,200
188,200
12,300
1,300

*[(£80,000 ÷ £10) + 900 – 400] X £1.20

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-69

COMPREHENSIVE PROBLEM SOLUTION (Continued)
Adjusting Entries
1. Supplies Expense (£4,400 + £35,100 – £5,900) ...
Supplies.............................................................
2. Unearned Service Revenue..................................
Service Revenue (£36,000 X 9/12) .............

27,000

3. Bad Debts Expense [£3,500 – (£1,500 – £1,300)]......
Allowance for Doubtful Accounts.............

3,300

4. Depreciation Expense—Building .......................
Accumulated Depreciation—Building
(£142,000 – £10,000) ÷ 30 .........................
5. Income Tax Expense ..............................................
Income Tax Payable.......................................
(b)

33,600

4,400

33,600
27,000
3,300

4,400
23,250
23,250

HIATT CORPORATION
Adjusted Trial Balance
12/31/11
Account
Debit
Cash.................................................................................. £146,000
Accounts Receivable ..................................................
57,200
Allowance for Doubtful Accounts ..........................
Supplies ..........................................................................
5,900
Land..................................................................................
40,000
Building ...........................................................................
142,000
Accum. Depreciation—Building..............................
Accounts Payable ........................................................
Income Taxes Payable................................................
Unearned Service Revenue ......................................
Dividends Payable .......................................................
Share Capital—Preference........................................
Share Premium—Preference....................................
Share Capital—Ordinary............................................
Share Premium—Ordinary ........................................
Retained Earnings .......................................................
Cash Dividends.............................................................
12,300
Treasury Shares ...........................................................
15,200
Service Revenue...........................................................
Bad Debts Expense .....................................................
3,300
Depreciation Expense ................................................
4,400
Supplies Expense ........................................................
33,600
Other Operating Expenses........................................
188,200
Income Tax Expense...................................................
23,250
Total.............................................................................. £671,350

11-70

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

Credit
£

3,500

26,400
28,500
23,250
9,000
12,300
30,000
3,000
89,000
12,000
127,400
307,000

£671,350

(For Instructor Use Only)

COMPREHENSIVE PROBLEM SOLUTION (Continued)
(c) Optional T Accounts

Bal.

Bal.

Cash
24,600
33,000
21,000
36,000
267,000
146,000

32,200
15,200
188,200

Accum. Depreciation—Building
Bal.
22,000
4,400
Bal.
26,400
Accounts Payable
32,200 Bal.
25,600
35,100
Bal.
28,500

Accounts Receivable
45,500
267,000
280,000
1,300
57,200

Income Taxes Payable
23,250

Allowance for Doubtful Accounts
1,300 Bal.
1,500
3,300
Bal.
3,500

Unearned Service Revenue
27,000
36,000
Bal.
9,000

Bal.
Bal.

Bal.
Bal.

Bal.

Bal.

Supplies
4,400
35,100
5,900

Land
40,000

Building
142,000

Copyright © 2011 John Wiley & Sons, Inc.

Dividends Payable
12,300

33,600

Share Capital—Preference
30,000

Share Premium—Preference
3,000

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-71

COMPREHENSIVE PROBLEM SOLUTION (Continued)
(c) (Continued)
Share Capital—Ordinary
Bal.
80,000
9,000
Bal.
89,000

Share Premium—Ordinary
12,000

Bad Debts Expense
3,300

Depreciation Expense
4,400

Supplies Expense
33,600
Retained Earnings
127,400
Other Operating Expenses
188,200
Cash Dividends
12,300
Income Tax Expense
23,250
Treasury Shares
15,200

Service Revenue

Bal.

11-72

280,000
27,000
307,000

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

COMPREHENSIVE PROBLEM SOLUTION (Continued)
(d)

HIATT CORPORATION
Income Statement
For the Year ending 12/31/11
Service revenue ..................................................
Operating expenses
Supplies expense ......................................
Depreciation expense ..............................
Bad debts expense....................................
Other operating expenses ......................
Total operating expenses ................................
Income before taxes..........................................
Income tax expense..................................
Net income............................................................

£307,000
£ 33,600
4,400
3,300
188,200
229,500
77,500
23,250
£ 54,250

HIATT CORPORATION
Retained Earnings Statement
For the Year ending 12/31/11
Retained earnings, 1/1/11 ....................................................
Add: Net income ..................................................................
Less: Dividends .....................................................................
Retained earnings, 12/31/11................................................

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

£127,400
54,250
181,650
12,300
£169,350

(For Instructor Use Only)

11-73

COMPREHENSIVE PROBLEM SOLUTION (Continued)
HIATT CORPORATION
Statement of Financial Position
At 12/31/2011
Assets
Property, plant, and equipment
Land.............................................................
£40,000
Building ...................................................... £142,000
Accumulated depreciation................... (26,400) 115,600 £155,600
Current assets
Supplies .....................................................
5,900
Accounts receivable .............................. 57,200
Allowance for doubtful accounts ...... (3,500) 53,700
Cash.............................................................
146,000 205,600
Total assets .......................................................
£361,200
Equity and Liabilities
Equity
Share capital—preference.....................
Share capital—ordinary .........................
Share premium—preference ................
Share premium—ordinary.....................
Retained earnings ............................................
Less: Treasury shares
(400 shares) ...........................................
Current liabilities
Accounts payable ....................................
Income taxes payable.............................
Dividends payable ...................................
Unearned service revenue ....................
Total equity and liabilities..............................

11-74

Copyright © 2011 John Wiley & Sons, Inc.

£30,000
89,000
3,000
12,000
169,350
15,200 £288,150
£28,500
23,250
12,300
9,000

Weygandt, IFRS, 1/e, Solutions Manual

73,050
£361,200

(For Instructor Use Only)

BYP 11-1

FINANCIAL REPORTING PROBLEM

(a) The ordinary shares of Cadbury has a par value of 10p per share.
(b) There are 2,500 million shares authorized of which 1,361 million are issued. The percentage is 54.4% (1,361 ÷ 2,500).
(c) Cadbury does not report any treasury shares so the ordinary shares outstanding equal the 1,361 million shares issued.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-75

BYP 11-2

COMPARATIVE ANALYSIS PROBLEM

*(a)

Cadbury
22.6p

Basic earnings per share

(b)

Nestlé
CHF4.87

Cadbury
Return on ordinary shareholders’ equity £366
(£4, 162 + £3, 522) ÷ 2

Nestlé

= 9.5%

CHF19, 051

= 34.7%

(CHF54, 776 + CHF54, 916) ÷ 2

The return on common shareholders’ equity can be used to compare the profitability of two companies. It shows how many dollars of net income were earned for each dollar invested by the owners. Since this ratio is expressed as a percent instead of a dollar amount like earnings per share, it can be used to compare Cadbury and Nestlé. During 2008,
Nestlé was significantly (265%) more profitable than Cadbury based on their respective returns on common stockholders’ equity. Earnings per share measures cannot be compared across companies because they may use vastly different numbers of shares to finance the company.
(c) Cadbury paid cash dividends of £295 million and Nestlé paid CHF4,573 million of cash dividends in 2008.

11-76

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

BYP 11-3

EXPLORING THE WEB

Answers will vary depending on company chosen by student.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-77

BYP 11-4

DECISION MAKING ACROSS THE ORGANIZATION

(a) The cumulative provision means that preference shareholders must be paid both current-year dividends and unpaid prior-year dividends before ordinary shareholders receive any dividends. When preference share are cumulative, preference dividends not declared in a given period are called dividends in arrears.
(b) The market price of a share is caused by many factors. Among the factors to be considered are: (1) the corporation’s anticipated future earnings, (2) its expected dividend rate per share, (3) its current financial position, (4) the current state of the economy, and (5) the current state of the securities markets.
Par value is the amount assigned to each share in the corporate charter.
Par value may be any amount selected by the corporation. Generally, the amount of par value is quite low because states often levy a tax on the corporation based on par value.
Par value is not indicative of the worth or market value of the shares. The significance of par value is a legal matter. Par value represents the legal capital per share that must be retained in the business for the protection of corporate creditors.
(c) A corporation may acquire treasury shares to:
1.
2.
3.
4.
5.

11-78

Reissue the shares to officers and employees under bonus or share compensation plans.
Increase trading of the company’s shares in the securities market in hope of enhancing its market value.
Have additional shares available for use in the acquisition of other companies. Reduce the number of shares outstanding and thereby increase earnings per share.
To rid the company of disgruntled investors.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

BYP 11-4 (Continued)
Treasury shares are not an asset. If treasury shares were reported as an asset, then unissued shares should also be shown as an asset, also an erroneous conclusion. Rather than being an asset, treasury shares reduce shareholder claims on corporate assets. This effect is correctly shown by reporting treasury shares as a deduction from total share capital and retained earnings.
(d) It is important to distinguish between legal capital and total share capital.
Par value represents the legal capital per share that must be retained in the business for the protection of corporate creditors. Share capital is not legal capital, and therefore a distinction between par value and share capital must be maintained.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-79

BYP 11-5

COMMUNICATION ACTIVITY

Dear Uncle Sol:
Thanks for your recent letter and for asking me to explain four terms.
Here are my explanations:
1.

Authorized shares are the total amount of shares that a corporation is given permission to sell as indicated in its charter. If all authorized shares are sold, a corporation must obtain consent of the state to amend its charter before it can issue additional shares.

2.

Issued shares are the amount of shares that have been sold either directly to investors or indirectly through an investment banking firm.

3.

Outstanding shares are capital shares that have been issued and are being held by shareholders.

4.

Preference shares are capital shares that have contractual preferences over ordinary shares in certain areas.

I really enjoy my accounting classes and especially like the accounting instructors. I hope your corporation does well, and I wish you continued success with your inventions.
Regards,

11-80

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

BYP 11-6

ETHICS CASE

(a) The stakeholders in this situation are:
The director of Healy’s R&D division.
The president of Healy.
The shareholders of Healy.
Those who live in the environment to be sprayed by the new
(untested) chemical.
(b) The president is risking the environment and everything and everybody in it that is exposed to this new chemical in order to enhance his company’s sales and to preserve his job. Presidents and entrepreneurs frequently take risks in performing their leadership functions, but this action appears to be irresponsible and unethical.
(c) A parent company may protect itself against loss and most reasonable business risks by establishing separate subsidiary corporations but whether it can insulate itself against this type of action is a matter of state corporate law and criminal law.

Copyright © 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

11-81