Caselets

Case 1: Wiebold, Incorporated 

The following note related to equity was reported in Wiebold, Inc.'s (USA) annual report.

On February 1, the Board of Directors declared a 3- for -2 share split, distributed on February 22 to shareholders of record on February 10. Accordingly, all numbers of common (ordinary) shares, except unissued shares and treasury shares, and all per share data have been restated to reflect this share split.

On the basis of amounts declared and paid, the annualized quarterly dividends per share were $0.80 in the current year and $0.75 in the prior year.

1-      What is the significance of the date of record and the date of distribution? 

2-      Why might Wiebold have declared a 3- for -2 for share split? 

3-      What impact does Wiebold's share split have on: 

a-      Total equity.

b-      Total per value.

c-      Outstanding shares.

d-      Book value per share.

Case 2:  Aljaber Corporation 

On January 1, 2011, Aljaber Corporation had the following equity accounts.

Share Capital   Ordinary ($10 per value, 60,000 shares Issued and outstanding)$ 600,000

Share Premium    Ordinary      500,000

Retained Earnings                    620,000

During 2011, the following transactions occurred:

Jan 15: Declared and paid a $1.05cash dividend per share to shareholders.

April 15: Declared and issued a 10% shared dividend. The market price of the shares was $14 per share.

May 15: Reacquired 2,000 ordinary shares at a market price of $15 per share.

Nov 15: Reissued 1,000 shares held in treasury at a price of $18 per share.

Dec 31: Determined that net income for the year was $370,000.

1- Journalize the above transactions.

Determine the ending balance amounts for share capital- ordinary, retained earnings and equity. 

2- Calculate the payout ratio and the return on equity ratio. 

3-  Saba auditors is examining Aljaber's financial statements and wonders whether the "gains" or "loss" on Aljaber's treasury share transactions should be included in income for the year. Briefly explain whether, and the conceptual reasons why, gains or losses on treasury share transactions should be recorded in income.

Case 3:

In accounting for long-term construction contracts (those taking longer than one year to complete), the two methods commonly followed are percentage-of-completion and cost-recovery.

(a)        Discuss how earnings on long-term construction contracts are recognized and computed under these two methods.

(b)        Under what circumstances should one method be used over the other? 

(c)        How are job costs and interim billings reflected on the balance sheet under the percentage-of-completion method and the cost-recovery method? (10 marks)

Case 4: Dixon Construction Company 

 Dixon Construction Company was awarded a contract to construct an interchange at the junction of U.S. 94 and Highway 30 at a total contract price of $8,000,000. The estimated total costs to complete the project were $6,000,000.

Instructions

(a)        Make the entry to record construction costs of $3,600,000, on construction in process to date. 

(b)        Make the entry to record progress billings of $2,000,000. 

(c)        Make the entry to recognize the profit that can be recognized to date, on a percentage-of-completion basis. 

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