Specific Motor Inc., makes and sells commercial vehicles. By December 31, 2018, the company reported retained earnings of $306,000. Since the company needs $2,000,000 to expand its business, its Board of Directors authorized the issuance of 2,000,000 share of $1 par value common stock in December 2018. The following transactions occurred in 2019. On January 24, Specific Motor issued 500,000 shares of its $1 par-value common stock at a market value of $3 cash per share. On March 15, Specific Motor found that it understated its revenue of 2016 from a major customer, Center Inc. for a net (after tax effect) of $41,000. On June 16, Specific Motor purchased 90,000 shares of treasury stock at $6 per share. On August 7, the board of Specific Motor declared cash dividends of $0.20 for each share of common stock outstanding on that day. The date of record was set to be September 30 and the date of payment (distribution) was set to be November 4. On September 30, Specific Motor finished recording the information of shareholders. On October 18, Specific Motor sold 70,000 shares of treasury shares at $10 cash per share. On November 4, Specific Motor paid the cash dividends declared on August 7. During 2019, Specific Motor sold out the entire inventory, which cost $2,000,000 for a total of $3,400,000. Operating expenses totaled $980,000 and income tax expense was $167,000. These transactions have been settled in cash. Requirements: RECORD the above transactions.

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Asked Dec 10, 2019
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Specific Motor Inc., makes and sells commercial vehicles. By December 31, 2018, the company reported retained earnings of $306,000. Since the company needs $2,000,000 to expand its business, its Board of Directors authorized the issuance of 2,000,000 share of $1 par value common stock in December 2018. The following transactions occurred in 2019.

 

  • On January 24, Specific Motor issued 500,000 shares of its $1 par-value common stock at a market value of $3 cash per share.

 

  • On March 15, Specific Motor found that it understated its revenue of 2016 from a major customer, Center Inc. for a net (after tax effect) of $41,000.

 

  • On June 16, Specific Motor purchased 90,000 shares of treasury stock at $6 per share.

 

  • On August 7, the board of Specific Motor declared cash dividends of $0.20 for each share of common stock outstanding on that day. The date of record was set to be September 30 and the date of payment (distribution) was set to be November 4.

 

  • On September 30, Specific Motor finished recording the information of shareholders.

 

  • On October 18, Specific Motor sold 70,000 shares of treasury shares at $10 cash per share.

 

  • On November 4, Specific Motor paid the cash dividends declared on August 7.

 

  • During 2019, Specific Motor sold out the entire inventory, which cost $2,000,000 for a total of $3,400,000. Operating expenses totaled $980,000 and income tax expense was $167,000. These transactions have been settled in cash.

 

Requirements:

 

  1. RECORD the above transactions.
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Expert Answer

Step 1

Journal Entry

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Journal entry in the books of Specific Motor Inc. Post Ref Particulars Debit Credit Date Jan- 24 Cash A/c Dr 1500000 To Common Stock A/c 500000 To Additional Paid-in Capital- Common Stock 1000000 (Being, shares issued at market price) Jun- Treasury Stock A/c To Cash A/c 16 Dr 540000 540000 (Being, purchase of treasury stock) Aug- 07 Retained Earnings A/c Dr 82000 To Dividend Payable A/c 82000 (Being, Dividends declared)

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Step 2

Journal entries co...

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Oct- Cash A/c 18 Dr 700000 To Treasury Stock A/c To Additional paid-in capital (Being, resale of treasury stock) 700000 Nov- 04 Dividend Payable A/c Dr 82000 To Cash A/c 82000 (Being, cash dividend paid) Cash A/c Dr 3400000 To Sales A/c 3400000 (Being, sales during the year recognised) Cost of Inventory A/c To Cash A/c Dr 2000000 2000000 (Being, purchase of inventory during the year)

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