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CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT After purchasing the five venues in June 2020, Front Row needed additional cash to renovate and operate these venues. While the company had successfully borrowed money before (from bank loans as well as from the issuance of bonds), it could not find a lender willing to invest in the business due to the large amount of debt that the company currently has on its balance sheet.
With debt financing out of the question, Front Row considers its other options. The name of an old college friend, Steve Trotter, immediately comes to Cam and Anna’s mind. Steve has previous work experience in the retail industry and expressed a desire to manage Front Row’s current merchandising operations (the sale of DVDs). His vision was to expand the operations to include apparel (t-shirts, hats, etc.) and other items (such as bobble-head dolls of the artists). In addition, several other family members have expressed an interest in investing in the company.
Front Row was authorized to issue 25,000 shares of its $l par common stock. On January l, 2019, it issued Cam and Anna 8,000 shares each for $1 per share. Front Row was also authorized to issue 20,000 shares of 8%, $50 par preferred stock. The following transactions occurred during the remainder of 2020.
Front Row had $53,250 of retained earnings to be included in the December 31,2020 balance sheet.
2. Prepare the stockholders’ equity section of the balance sheet at December 31, 2020.
Introduction:
Journal entries are recording of financial transactions in the journal book which is further used to prepare the ledger accounts. It is the first step of bookkeeping.
To prepare:
Journal entries.
Opening Balance:
Opening Balance in Retained Earnings = $53,250
On Jan 1, 8,000 common shares for $1 per shares were issued.
June 15 : No. of shares issued = 2,000
Par Value = $1
Stock Price = $20 per share
Cash received =
Cash received =
Value of Common Stock issued =
Value of Common Stock issued =
Additional Paid-in capital (common stock) = Cash received - Value of Common Stock issued
Additional Paid-in capital (common stock) = $40,000 - $2,000 = $38,000
July 1:
No. of shares issued = 3,000
Par Value = $50
Stock Price = $75 per share
Cash received =
Cash received =
Value of Common Stock issued =
Value of Common Stock issued =
Additional Paid-in capital (preferred stock) = Cash received - Value of Common Stock issued
Additional Paid-in capital (preferred stock) = $225,000 - $150,000 = $75,000
Dividend Payable on preferred stock for 6 months =
July 10:
Repurchased shares are shown in equity capital as treasury stock. Treasury stock increases which decreases equity of the firm and cash also decreases as the amount is paid for repurchase of shares from market.
Repurchased shares = 700
Stock Price = $16
Treasury Stock =
Treasury Stock =
August 5:
Dividend of $25,000 was declared
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