Textbook Notes (270,000)
CA (160,000)
UTSG (10,000)
Chapter

RSM221H1 Chapter Notes -Issued Shares, Book Value, Retained Earnings


Department
Rotman Commerce
Course Code
RSM221H1
Professor
Scott Douglass

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EXERCISE 15-1 (10-15 minutes)
Jan. 10 Cash (200,000 X $23) .............. 4,600,000
Common Shares ............... 4,600,000
Mar. 1 Cash (17,000 X $119) .............. 2,023,000
Preferred Shares ............... 2,023,000
April 1 Land ......................................... 60,000
Common Shares ............... 60,000
May 1 Cash (20,000 X $18) ................ 360,000
Common Shares ............... 360,000
Aug. 1 Organization Costs ................. 19,000
Common Shares ............... 19,000
Sept. 1 Cash (32,500 X $16) ................ 520,000
Common Shares ............... 520,000
Nov. 1 Cash (1,500 X $125) ................ 187,500
Preferred Shares ............... 187,500

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EXERCISE 15-2 (15-20 minutes)
(a)
Original Subscription:
Subscriptions Receivable .................................... 880,000
(40,000 shares X $22 each)
Common Shares Subscribed ....................... 880,000
Collection of Down Payments:
Cash ($880,000 X .35) ........................................... 308,000
Subscriptions Receivable ............................ 308,000
Collection of Balance:
Cash ($880,000 $308,000) ................................. 572,000
Subscriptions Receivable ............................ 572,000
Issuance of Shares:
Common Shares Subscribed .............................. 880,000
Common Shares ........................................... 880,000
(b) Under PE GAAP, whether the Subscriptions Receivable
account should be presented as an asset or a contra equity
account is a matter of professional judgement, although
conceptually, it makes sense to record as a reduction of
equity. Note that Section 3251.10 of the CICA Handbook,
Part II requires that share purchase loans receivables must
be shown as contra equity unless the borrower is fully
responsible for declines in value of the shares and there is
reasonable assurance that the full amounts will be
collected. In the United States, the SEC requires the
Subscriptions Receivable account to be presented as a
reduction of equity.

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EXERCISE 15-2 (Continued)
(c) If a subscriber is unable to pay all instalments and
therefore defaults on the agreement, the possibilities
include: (1) returning the amount already paid by the
subscriber (possibly after deducting some expenses), (2)
treating the amount paid as forfeited and therefore
transferring it to the Contributed Surplus account, or (3)
issuing fewer shares to the subscriber so that the number
of shares issued is equivalent to what the subscription
payments already received would have paid for fully. Note
that in some jurisdictions, the limit to the liability of the
subscriber in case of corporate failure is the subscription
price, rather than the amount paid up at the time of the
failure.
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