Stockholders\' Equity: A Short Comprehensive Problem Early in the year Bill Shar
ID: 2561195 • Letter: S
Question
Stockholders' Equity: A Short Comprehensive Problem Early in the year Bill Sharnes and several friends organized a corporation called Sharnes Communications, Inc. The corporation was authorized to issue 50,000 shares of $100 par value 10 percent cumulative preferred stock and 400,000 shares of $2 par value common stock. The following transactions (among others) occurred during the year. Jan. 6 Issued for cash 20,000 shares of common stock at $14 per share. The shares were issued to Sharnes and 10 other investors. Issued an additional 500 shares of common stock to Sharnes in exchange for his ser- vices in organizing the corporation. The stockholders agreed that these services were worth $7,000 Issued 2,500 shares of preferred stock for cash of $250,000. Acquired land as a building site in exchange for 15,000 shares of common stock. In view of the appraised value of the land and the progress of the company, the directors agreed that the common stock was to be valued for p $15 per share The first annual dividend of $10 per share was declared on the preferred stock to be paid December 20 Paid the cash dividend declared on November 15 After the revenue and expenses were closed into the Income Summary account, that account indicated a net income of $147,200 Jan. 7 Jan. 12 June 4 urposes of this transaction at Nov. 15 Dec. 20 Dec. 31 Instructions a. Prepare journal entries in general journal form to record the above transactions. Include entries at December 31 to close the Income Summary account and the Dividends account. b. Prepare the stockholders' equity section of the Sharnes Communications, Inc., balance sheet at December 31Explanation / Answer
a. Sharnes Communications Inc. General Journal for the current year ended December 31 Date Account title Debit Credit Jan.6 Cash 280000 Common stock 40000 Aditional paid in capital 240000 (To record issue of 20,000 shares of common stock $2 par) Jan.7 Service expense 7000 Common stock 1000 Additional paid in capital 6000 (To record issue of 500 shares to Bills sharnes) Jan.12 Cash 250000 Preferred capital 250000 (To record issue of 2,500 preferred shares $100 par) June.4 Land 225000 Common stock 30000 Additional paid in capital 195000 (To record issue of 2,500 sahres of common stock for land) Nov.15 Dividend 25000 Dividend payable 25000 (To record dividend declared on preferred shares @$10per share) Dec.20 Dividend payable 25000 Cash 25000 (To record payment of cash dividend declared on Nov.15) Dec.31 Income summary 147200 Retained earnings 147200 (To record closing of net income to retained earnings) Dec.31 Retained earnings 25000 Dividend 25000 (To record clsoing of the dividend to retained earnings) b. Sharnes Communications Inc. Stockholders section of the balance sheet as at December31, current year Preferred stock Authorised 50,000 shares of $100par Issued and paid up 2,500 shares , $100 par 250000 Common stock Authorised 400,000 shares of $2par Issued and paid up 35,500 shares , $2 par 71000 Additional paid in capital 441000 512000 Retained earnings Balance as at January 1, current year 0 Net income for the year 147200 Dividend paid -25000 Balance as at December 31, current year 122200 Total stockholders' equity 884200