During 20X7, TD Ltd. repurchased 4,000 common shares and 2,000 preferred shares,

Question

During 20X7, TD Ltd. repurchased 4,000 common shares and 2,000 preferred shares, respectively. Net income was $100,000 in 20X7, and dividends declared, $40,000. The comparative equity accounts for 20X6 and 20X7 are: Balances- December 31 Preferred Shares Common Shares Contributed capital-repurchase of preferred shares Contributed capital-repurchase of common shares Retained earnings Required: 1) What was the original issue price of the common shares? The preferreds? (show your calculations) 2) What amount was paid for the common shares repurchased? The preferreds? (show your calculations) 20X7 20X6 $ 460,000 $1,200,000 $1,400,000 $ 24,000 0 0 30,000 S 270,000 240,000

Explanation / Answer

Common Share in 20X6 = $ 1400,000 Common Share in 20X7 = $ 1200,000 Common sharecapital repaid (1400,000-1200,000) = $ 200,000 Number of common shares repaid = 4000 shares Nominal value of share ( 200,000 /4000) = $ 50 per share Preferred share capital in 20X6 = $ 460,000 Preferred share cpaital in 20X7 = $ 360,000 Preferred share capital repaid (460,000 -360,000) = $ 100,000 Number of preferred shares repaid = 2000 shares Nominal Value of preferred shares ( 100,000 /2000) = $ 50 per preferred share Req A: Common share capital in 20X6    = $ 1400,000 Add: Contributed capital in 20X6 = $ 30,000 Total amount received for issuance $ 1430,000 Number of common shares issued (1400,000 /50) = 28,000 common shares Issue price for common shares in 20X6 ( 1430,000 /28,000) = $ 51.07 per common share Preferred share capital in 20X6 $ 460,000 Balance n contributed capital Nil Total amount received on issuance $ 460,000 Number of preferred shares issued( 460,000 /50) = 9200 preferred shares Issue price for preferred share in 20x6 (460,000 /9200) = $ 50 per preferred share ReqB: Nominal value of common sharecapital redeemed (1400,000-1200,000) = $ 200,000 Add: Balance of contributed capital utilized while redemption                       $30,000 Add: Balance of retained earning utilized (240,000+60,000-270,000)              $30,000 Total amount paid for repurchase of common shares                                          $ 260,000 (i.e. repurchase at a price of $ 65 per share) Nominal value of preferred share capital repurchased(460,000-360,000)    $100,000 Less: Balance Credited in contributed capital after repurchase                         $ 24,000 Amount paid for repurchase of preferred capital                 $76,000 (i.e. repurchase at a price of $38 per preferred share)

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