1 5.

Normito Company showed the following shareholders equity on January 1,

201.
!hare "apital, 1,500,000 shares 1,500,000
!hare premium 15,000,000
#etained earnings $,100,000
%reasury shares, 100,000 at "ost&'00,000(
)ll of the outstanding and treasury shares were originally issued in 201 for *11 per
share. %he treasury shares are rea"quired on +ar"h ,1, 201,. -uring 201, the
following e.ents or transa"tions o""urred relating to shareholders equity/
). 0e1ruary 15 2ssued 00,000 shares for * 12.50 per share.
3. June 15 -e"lared a "ash di.idend of * 0.20 per share to shareholders of re"ord
on )pril 1 and paya1le on )pril 15. %his was the 4rst di.idend e.er de"lared.
C !eptem1er 15 %he president retired. %he entity pur"hased from the retiring
president 100,000 shares for * 1,.00 per share whi"h was equal to mar5et .alue on
this date. %hese shares were "an"eled.
-. -e"em1er 15 -e"lared a "ash di.idend of * 0.20 per share to shareholders of
re"ord on January 2, 2015 and paya1le on January 15, 2015.
6. 7n -e"em1er ,1, 201, the entity is 1eing sued 1y two separate parties for
patent infringement. %he management and legal "ounsel share the following opinion
regarding these suits/
Suit Likelihood of losing the suit Estimated loss
81 #easona1ly possi1le 900,000
82 *ro1a1le 00,000
Questions 1-5
1. :hat is the in"rease in share premium arising from the issuan"e of 00,000
shares on 0e1ruary 15;
2. :hat is the de"rease in share premium arising from the retirement of 100,000
shares on !eptem1er 15;
,. %he entity de"ided to appropriate retained earnings for all loss "ontingen"ies that
are not properly a""rua1le 1y a "harge to e<pense. =ow mu"h of loss "ontingen"ies
should 1e appropriated 1y a "harge to unappropriated retained earnings;
. :hat amount of "ash di.idend should 1e "harged against unappropriated
retained earnings in 201;
5. :hat amount should 1e reported in the notes to 4nan"ial statements as
restri"tion on retained earnings 1e"ause of a"quisition of treasury shares;
9 > 10 Christian Company reported the following shareholders equity on January 1,
201/
!hare "apital, *100 par 9,000,000
!hare premium 500,000
#etained earnings 1,$00,000
%ransa"tions during the year and other information relating to shareholders equity
a""ounts were as follows/
1. 7n January 29, the entity rea"quired for "ash 5,000 shares for *110 per share.
2. 7n )pril , the entity sold for "ash ,,000 shares of its treasury for *10 per share.
,. 7n June 1, the entity de"lared a "ash di.idend of * 20 per share, paya1le July 5,
to shareholders of re"ord on July 1.
. 7n No.em1er 1, the entity de"lared a 2 for 1 split and "hanged the par .alue
from *100 to *50. 7n No.em1er 20, shares were issued for the share split.
5. 7n -e"em1er 5, ,000 shares were issued in e<"hange for a se"ond hand
equipment. %he equipment originally "ost * 00 000, was "arried 1y the pre.ious
owner at a "arrying amount of * 200,000 and was fairly .alued at * 290,000.
9. Net in"ome for the year was * 1,?,0,000.
?. )ppropriated retained earnings equal to the "ost of treasury shares.
Required:
1. *repare @ournal entries to re"ord the transa"tions.
2. *repare a statement of "hanges in equity for the year ended -e"em1er ,1, 201.
,. *resent the shareholders equity on -e"em1er ,1, 201.
%here is only one thing that ma5es a dream impossi1le to a"hie.e/ the fear of failure.