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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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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.

Chapter 10, Problem 95.2C, CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT After purchasing the five venues in June 2020, Front Row

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.

To determine

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.

Explanation

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 = No. of shares issued × Stock Price

Cash received = 2,000×$20 = $40,000

Value of Common Stock issued = No. of shares issued × Par Value

Value of Common Stock issued = 2,000×$1 = $2,000

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 = No. of shares issued × Stock Price

Cash received = 3,000×$75 = $225,000

Value of Common Stock issued = No. of shares issued × Par Value

Value of Common Stock issued = 3,000×$50 = $150,000

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 = $150,000×8%×612 = $6,000

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 = Repurchased shares × Stock Price

Treasury Stock = 700 × $16 = $11,200

August 5:

Dividend of $25,000 was declared

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