Harrison Springs Limited (HSL) had an Initial Public Offering incorporated on January 1, 2020 with the following

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Question:

Harrison Springs Limited (HSL) had an Initial Public Offering incorporated on January 1, 2020 with the following chronological equity related events.

Required:

Prepare entries, with all supporting computations, for the following events. Please round dollar amounts to two decimal places when calculating ‘per share’ amounts. Otherwise, round all entries to the nearest dollar. Assume there will be income generated to provide sufficient retained earnings to absorb any dividends or other charges to retained earnings in the current year.

January 1:

The Articles of Incorporation state that HSL is authorized to issue unlimited common shares and 500,000 preferred shares. Preferred shares have preference to cash dividends only as follows; they are cumulative, $.50 annual entitlement and participate fully after common shares have been awarded $.40 per share, applied on an annual basis.

If activated, the preferred share participation is based on the relative proportion of the respective value of the share capital account balances (excluding any shares held in Treasury, should they exist at the time) at the date of dividend declaration. HSL is incorporated in a province that permits Treasury share transactions.

No entry.

January 2:

200,000 preferred shares were issued for $42.00 per share.

January 5:

As an incentive to locate part of its operations in a particularly economically depressed town, the municipality gave HSL vacant industrial land which had a cost of $50,000 to the municipality several years ago but had a fair value at the time of title transfer of $270,000; all attributable to the common shareholder group.

January 10:

500,000 common shares were issued to shareholders by the underwriter for $39.00 per share. Total issue costs; securities lawyers, underwriters fees, accountants, share printing were $500,000 of the gross share capital proceeds.

Analysis and entry(ies):

500,000 x $39.00 = $19,500,000; fees of $500,000 reduce share capital account: do not expense (this is a capital related transaction)

January 20:

60,000 common shares were sold by subscription to 500 subscribers who will purchase 120 shares each at a subscription price of $50 per share. 20% of the subscription, in cash, accompanied the contract and the balance was due on December 15, 2020.

May 1:

10% of the preferred shares were repurchased and retired from the open market at $43.50 per share.

May 28:

HSL acquired specialized machinery by issuing 20,000 preferred shares when the preferred shares were actively trading at a five day average of $48.00 per share at the time of the acquisition and an estimate of the fair value of the equipment was provided at $1,060,000. This estimate was not considered reliable due to the very specialized nature of the precision equipment and having been manufactured in Switzerland . The company values shares issued in acquiring assets as prescribed under IFRS 2. (Hint: Google “IFRS 2” and all will be revealed!)

June 13:

HSL repurchased and retired 50,000 common shares at a purchase cost of $43 per share.

July 5:

HSL went to the open market and purchased 15,000 common shares at $52 which it designated as being held in Treasury.

August 12:

The company declared a 2% stock dividend on common shares outstanding at this date, to be distributed on August 30, valued at $40 per share. The issue resulted in fractional share rights for the equivalent of 200 shares. The company bylaws permitted stock dividends on common shares are not pre-empted by preferred share dividend entitlements.

August 30:

Shares were issued under the common share dividend declaration. ½ fractional share rights were exercised; the remainder lapsed

December 10:

HSL re-sold to the open market 5,000 of the shares it was holding in treasury for proceeds of $46.20 per share

December 15:

All but 5 subscribers to the share subscription contracts entered into on January 20 paid in full at this date and the shares were issued. According to the contract, the defaulting subscribers would lose all deposits.

August 12:

August 30:

Shares were issued under the common share dividend declaration. ½ fractional share rights were exercised; the remainder lapsed

December 10:

HSL re-sold to the open market 5,000 of the shares it was holding in treasury for proceeds of $46.20 per share

December 15:

HSL had purchased 50,000 shares during the year of Whistler Recreation Limited (WRL) for a total purchase price of $200,000 (account: Investments in equities) appropriately accounted for and this entry need not be made in your answer. This purchase did not constitute either significant influence or control over WRL and HSL has not adopted fair valuation of financial instruments. On December 15, when WRL shares were trading at $9.00 per share and as provided in the Articles of Incorporation, HSL declared a property dividend of all WRL shares distributable to the preferred shareholders only of HSL. The WRL shares will be distributed on January 15, 2021.

December 20:

The company declared $400,000 in cash dividends, to be distributed in accordance with the share class entitlements. (Round to nearest dollar in determining distribution; no cents; any %s to one decimal place); no multiple entries.

Analysis and entry(ies): Hint: calculate the participation (if activated) % by share class on the prescribed participation basis before proceeding with the dividend distribution calculation.

Required:

Prepare entries, with all supporting computations, for the following events.