SOLUTIONS MANUAL to accompany Fundamental Accounting Principles 16th Canadian Edition by Larson
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Course
CANADIAN TAX PRINCIPLES
Institution
CANADIAN TAX PRINCIPLES
Corporate Reporting: Profit, Earnings per Share, and Retained Earnings
Chapter Opening Critical Thinking Challenge Questions*
What factors, other than the repurchase of shares, cause earnings per share to increase or decrease?
Other factors that cause earnings per share to:
• Increas...
What factors, other than the repurchase of shares, cause earnings per share to increase
or decrease?
Other factors that cause earnings per share to:
Increase: increase in profit, reverse share split (although most students would not
know this), decrease in payment of preferred dividends
Decrease: loss or decreases in profit, share splits, share dividends, issuance of
shares, increase in payment of preferred dividends
*The Chapter 13 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
1. a) 2. d) 3. b) 4. b) 5. d)
6. c) 7. d) 8. b) 9. c) 10. c)
Concept Review Questions
1. A share dividend produces a distribution of additional shares to shareholders and a
capitalization of retained earnings. In contrast, a share split calls in the old shares
and replaces them with a different number of new shares. In addition, no entry is
made to any of the equity accounts for a share split.
2. Declaring a share dividend has no effect on assets, liabilities, or total equity. The
subsequent distribution of the share dividend also has no effect on these items.
3. Indigo’s March 31, 2018 balance in share capital was 26,800,609 shares. A review of
Note 15, Share Capital shows that the increase in shares from 2017 to 2018 was
caused by options exercised.
4. With a simple capital structure, earnings per share results are calculated by first
subtracting any declared or cumulative preferred dividends from profit, and then
dividing the difference by the weighted-average number of shares of outstanding
common shares.
5. Spin Master’s financial statements report that basic EPS increased from $0.99 per
share in 2016 to $1.58 per share for 2017.
6. WestJet’s shares were reduced in 2016 and 2017 as shares were repurchased,
5,954,949 in 2016 and 3,523,597 in 2017. Some shares were issued for compensation
plans, but much less than were repurchased.
7. This new decision is a change in an accounting estimate, not a change in
accounting policy. The change would be included in the current financial
statements with decreased depreciation over the remaining six years of the asset’s
revised useful life.
8. The Apple executives made the decision to do a 7:1 stock split to bring the per unit
share price down and become more accessible for the individual investor. The stock
split resulted in the stock going from over $645.57 per share to a more accessible
$92.44.
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