Lomoarcpsd11771818 reacquisiton and retrement of

lOMoARcPSD|11771818

Reacquisiton and retrement of shares (1,000 shares) (25,000)
Shares issued (2,000 shares) 180,000
Instructions
A. Prepare a statement of shareholders’ equity for the year.
B. Prepare the shareholders’ equity section of the statement of financial position at December 31, 2020.
Problem 2: Solution
A.
THE RED HERRING FISHING SHOP LIMITED
Statement of Changes in Equity
Year Ended December 31, 2020
Common Shares
Number
of
Shares
Share
Capital
Contributed
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Equity
Balance,
January 1
32,000 $800,000 $540,000 $1,500,000 $40,000 $2,880,000
Issued common
shares
2,000 180,000 180,000
Reacquired
shares
(1,000) (25,000) (55,000) (80,000)
Declared
dividends
(70,000) (70,000)
Comprehensive
income
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lOMoARcPSD|11771818

THE RED HERRING FISHING SHOP LIMITED
Statement of Changes in Equity
Year Ended December 31, 2020
Common Shares
Number
of
Shares
Share
Capital
Contributed
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Equity
Net income 400,000 400,000
Other
comprehensive
income
Foreign
currency
translaton
gain
25,000 25,000
Balance,
December 31
33,000 $955,000 $485,000 $1,830,000 $65,000 $3,335,000
Calculations:
(1) $150,000 × 25% = $37,500
(2) $99,000 × 25% = $24,750
(3) $99,000 - $24,750 = $74,250
(4) $112,500 ÷ 85,000 = $1.32
(5) $74,250 ÷ 85,000 = $(0.87)
B.
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lOMoARcPSD|11771818

THE RED HERRING FISHING SHOP LIMITED
Statement of Financial Positon (Partal)
December 31, 2020
Shareholders’ equity
Contributed capital
Share capital
Common shares $955,000
Other contributed surplus 485,000
Total contributed capital $1,440,000
Retained earnings 1,830,000
Accumulated other comprehensive income 65,000
Total shareholders’ equity $3,335,000
Problem 3
During May, the Rafolo Convenience Store sold $27,000 of goods to customers and received $22,000 in cash with
the remainder on account.
The cost of the inventory sold during the month was $13,000. This inventory was purchased with cash in the
previous month. The store purchased $8,000 of inventory during May and paid $4,000 in cash with the remaining
inventory bought on account. Rafolo paid $7,000 in wages for the month for employee hours worked during May.
Rafolo also received a $600 bill for utilities for the month that will not be paid until June. Finally, Rafolo received rent
of $4,000 for the connected storefront for the four-month period of May through August. During a recent conversation
with their accountant, it is expected that Rafolo will have to pay $950 for income taxes for the month of May.
Instructions
A. Calculate May’s net income under the cash basis of accounting.
B. Calculate May’s net income under the accrual basis of accounting.