SOLVED

16) Great-West Lifeco Inc. announced the following share issuances: Â March 1, 2013 10,000,000 2% non-cumulative five-year rate reset first preferred shares (series J) for par value of $12 each. After five years the dividend rate will be reset to the five-year Canada bond rate plus 3.35%. Dividends are payable as declared by the board of directors. Â April 9, 2013 28,350,000 common shares for $19.25 per share. This represents approximately 4.6% of Lifeco’s total outstanding common shares. The CEO of the company stated the following regarding these share issuances: For many years, Great-West Life and its subsidiaries have pursued a risk-averse strategy with respect to both liabilities and assets. Consequently, today the company’s balance sheet is one of the strongest in its industry. With this issue, the company will move forward with an enhanced capability to take advantage of market opportunities. Â Required: a. Prepare the journal entries to record the share issuances. b. Explain how the share issuances result in a “risk-averse strategy with respect to both liabilities and assets,” and how this results in a strong balance sheet that allows the company to take advantage of market opportunities, such as profitable investments. c. Assume the board of directors declares dividends on December 31, 2013 in the amount of $15,000,000. Calculate the amount of dividends to be paid to preferred shareholders and common shareholders (assume the company only has the above stated series of preferred shares outstanding). 17) When a corporation engages in a capital transaction (those relating to its contributed capital), the journal entry may involve either a debit or a credit to contributed surplus. While not permitted by accounting standards, if these debits or credits were to be recognized through income, a debit would be called a “loss” and a credit would be called a “gain.” Consider the following sequence of transactions: ?Jan. 1, 2012: Company issues 1,500,000 no par common shares at $14 each. ?Jan. 1, 2018: Company reacquires 150,000 common shares in the open market at $9 each, and cancels them immediately. There were no other capital transactions and the company had not paid any dividends. Required: a. Prepare the journal entries for the two transactions. b. Review the journal entry for January 1, 2018. How much was credited other than cash? Does this credit reflect good or bad management? As a shareholder, would you be happy or unhappy about this credit entry? c. What would have been the journal entry for January 1, 2018 had the repurchase price been $24? d. In the journal entry for part (c), explain why the debit goes to reduce retained earnings. How would a shareholder interpret the reduction in retained earnings?