Some of the account balances of Vos Limited at December 31, 2010, are as follows: $6
Preferred shares (no par, 2,000 shares authorized, 2,000 shares issued
and outstanding) $520,000 Common shares (no par, 100,000 shares authorized,
50,000 shares issued and outstanding) ............ 500,000
Contributed surplus .................. 103,000
Retained earnings .................. 774,000
Accumulated other comprehensive income .......... 22,350
The price of the company’s common shares has been increasing steadily on the market; it was $21 on January 1, 2011, and advanced to $24 by July 1 and to $27 at the end of the year 2011. The preferred shares are not openly traded but were appraised at $120 per share during 2011. Vos follows IFRS and had net income of $154,000 during 2011.
(a). Prepare the proper journal entries for each of the following.
1. The company declared a property dividend on April 1. Each common shareholder was to receive one share of Waterloo Corp. for every 10 shares outstanding. Vos had 8,000 shares of Waterloo (2% of the outstanding shares), and had purchased them in 2006 for $68,400. The shares were held for sale and are accounted for using fair value through other comprehensive income (FV-OCI) model. The accumulated other comprehensive income relates only to these shares. The fair value of Waterloo shares was $16 per share on April 1. The property dividend was distributed April 21 when the fair value of the Waterloo shares was $18.50. The Waterloo shares stayed at a fair value of $18.50 until year end.
2. On July 1, the company declared a 5% stock dividend to the remaining common shareholders. The stock dividend was distributed July 22.
3. A shareholder, in an effort to persuade Vos to expand into her city, donated to the company a plot of land with an appraised value of $42,000.
(b). Prepare the shareholders’ equity section of Vos’ balance sheet at December 31, 2011.
(c). How should Vos account for the difference in fair value of the Waterloo shares between the date of declaration and date of distribution? Does the declaration of a property dividend create a financial liability?