Problem
Rachels Deli (RD) is a deli that sells fresh sandwiches, soups, and salads. Rachel's Deli was founded by Rachel and Kyle, who are brother and sister, and began as a small, local deli in Edmonton. Based on rave reviews of their salmon grilled sandwich, Rachel and Kyle have decided to expand operations within Alberta. As part of the expansion plans, all of the assets were rolled over into a newly formed corporation that has a fiscal year end of December 31, 2020. The corporation issued 50,000 shares to each of Rachel and Kyle for $3 per share. During their first year of operations, Rachel and Kyle decided to hire Lebeau and Liang LLP (L&L) to help develop accounting policies that are consistent with ASPE for various new transactions. You, a senior accountant with L&L, have been assigned to the RD file and met with Rachel and Kyle to discuss the various new issues.
Rachel and Kyle have provided you with the following information regarding the new issue: On August 1, the company reacquired and cancelled 1,500 of Rachel's and 1,500 of Kyle's shares at $4 per share. All 3,000 shares were re-issued to Khaled, a long-time friend, at a price of $5 per share. Rachel and Kyle were unsure of how to account for these transactions.