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 Shares as on 20x6           14,00,000 Common Shares as on 20x7           12,00,000 Reduction in Equity             2,00,000 No of Shares Purchased                   4,000 Original Issue Price                         50 Total No of Common Shares                 28,000 (1400000/50) Retained Earnings 20x6             2,40,000 Net Income in 20x7             1,00,000             3,40,000 Retained earnings 20x7             2,70,000 Difference                 70,000 Contributory Capital repurchase of common shares                 30,000 Amount paid for repurchase of Common Shares             1,00,000

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