Algonquin Corporations sold 50,000 common shares on a subscription basis for $40

Question

Algonquin Corporations sold 50,000 common shares on a subscription basis for $40 per share. By December 31, 2014, collections on these subscriptions totalled $1.3 million. None of the subscriptions has been paid in full so far. Algonquin is a private company.

Instructions:

(a) Discuss the meaning of the account Common Shares Subscribed and indicate how it is reported in the financial statements.

(b) Discuss the arguments in favour of reporting Subscriptions Receivable as a current asset.

(c) Discuss the arguments in favour of reporting Subscriptions Receivable as a contra equity account.

(d) Indicate how these 50,000 shares would be presented on Algonquin’s December 31, 2014 balance sheet under the method discussed in (c) above.

(e) Suppose that Algonquin also has a benefit plan that allows employees to purchase shares of the company, and take two years to pay for the shares. When an employee agrees to purchase the shares, the shares are shown as issued and an Employee Share Loan Receivable Account is set up. As payments are made by the employee, this loan receivable account is reduced. Discuss the reporting issues related to this receivable account under IFRS and ASPE.

Explanation / Answer

a. Common share subscribed is an account which represents equity capital of the company subscribed by the public. This account is reported in the balance sheet of the company under stockholder's Equity account.

b. Subscription receivable is the amount which the company will get from the public against the shares taken by the public in the near future. This amount is reported as a current asset because this is the amount that the company has right to recover from the subscriber of stock and the amount is expected to be collected within a year. So, it is fair to report the amount as a current asset in the balance sheet.

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