Impact of Share Repurchases on Financial Accounting Assignment
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Assignment Detail:-
- Number of Words: 2500
Question
On 31 December 2012 the company reported the following statement of shareholders’ equity.
| Balance, end of fiscal 2012 (in Canadian dollars) | 10,501,000 |
| Repurchase of shares | (1,575,000) |
| Share issue from exercised employee share options | 5,670,000 |
| Cash dividend | (1,260,000) |
| Tax benefit from exercise of employee share options | 410,000 |
| Unrealized gain on debt investment | 350,000 |
| Net income | 3,276,000 |
| Balance, end of fiscal 2013 | 17,372,000 |
During 2012 the following events took place:
- In February 2012, the company repurchased 45,000 shares and decided to retire the The share repurchase was a result of a share repurchase agreement which gave the counter party the right to sell shares to IMG at $35 per share. At the time of the share repurchase the company’s share was trading at $27 per share. Shareholders’ equity just before the share repurchase consisted of 1,313,000 of issued and fully-paid ordinary shares (par value of $2 per share), share premium of $5,775,000 and retained profits of $2,100,000.
- In June 2012, a number of top managers decided to exercise their employee share options (granted to them in 2011 as part of their remuneration packages) and purchased 170,000 shares.
Required:
(a) Show the accounting entries related to the share repurchase and cancellation of Assume that the company must create a capital redemption reserve fund and that the retained profits are the only distributable reserves of total equity.
(b) Show the shareholders’ equity after both the above capital transactions and explain the purpose of the creation of the capital redemption reserve fund.
(c) Calculate the amount of the gain or loss upon the share repurchase for the company.
(d) Calculate the amount of the gain or loss upon the share issue from exercised employee share options. Assume a marginal tax rate of 35%.
(e) Calculate the market price of the share at the time of the share issue upon the exercise of employee share options.
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