The following shareholders' equity accounts are reported by Branch Inc. on January 1: Common shares (unlimited authorized,

Question:

The following shareholders' equity accounts are reported by Branch Inc. on January 1:

Common shares (unlimited authorized, 150,000 issued)..................................$2,400,000

Preferred shares ($4 cumulative, convertible, 100,000 authorized, 5,000 issued).........375,000

Contributed surplus-reacquisition of common shares..........................................30,000

Retained earnings.................................................................................1,275,000

The following selected transactions occurred during the year:

Feb. 11 Issued 50,000 common shares at $20 per share.

Mar. 2 Reacquired 20,000 common shares at $22 per share.

June 14 Split the common shares 2 for 1 when the common shares were trading at $30 per share.

July 25 Reacquired 500 preferred shares at $70 per share.

Sept. 16 Reacquired 50,000 common shares for $17 per share.

Oct. 27 Declared a 5% common stock dividend distributable on December 13 to shareholders of record on November 24. The fair value of the common shares on October 27 was $19 per share.

Dec. 13 Distributed the stock dividend declared on October 27. The fair value of the common shares on December 13 was $21 per share.

Instructions

(a) Prepare journal entries for the transactions.

(b) Show how each class of shares will be presented in the shareholders' equity section of the balance sheet at December 31.

TAKING IT FURTHER

Why is the Contributed Surplus account reported in shareholders' equity?

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