Concept explainers
(a)
Accounting Cycle: The accounting cycle refers to the entire process of recording the accounting transactions of an organization and then processing them. The accounting cycle starts when a transaction takes places and it ends at the time when these transactions are recorded in the financial statements of the company.
The following are the rules of debit and credit:
- 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and
stockholders’ equity accounts are debited. - 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.
To Record: The journal entries and
(a)
Explanation of Solution
Prepare the journal entries for Company H during 2017:
Date | Account Title and Description | Post Ref. |
Debit ($) |
Credit ($) |
1 | Cash | 49,200 | ||
| 48,000 (1) | |||
Paid-in-Capital in Excess of par value – Preferred Stock | 1,200 (2) | |||
(To record the issuance of preferred stock) | ||||
2 | Cash | 21,000 | ||
Common Stock | 9,000 | |||
Paid-in-Capital in Excess of par value – Common Stock | 12,000 | |||
(To record the issuance of common stock) | ||||
3 | 320,000 | |||
Service revenue | 320,000 | |||
(To record service revenue) | ||||
4 | Cash | 36,000 | ||
Unearned Service Revenue | 36,000 | |||
(To record unearned service revenue) | ||||
5 | Cash | 276,000 | ||
Accounts Receivable | 276,000 | |||
(To record cash received for accounts receivable) | ||||
6 | Supplies | 35,100 | ||
Accounts Payable | 35,100 | |||
(To record purchase of supplies on account) | ||||
7 | Accounts Payable | 32,200 | ||
Cash | 32,200 | |||
(To record the payment for accounts payable) | ||||
8 | 11,200 (3) | |||
Cash | 11,200 | |||
(To record purchase of treasury stock) | ||||
9 | Other operating expense | 188,200 | ||
Cash | 188,200 | |||
(To record other operating expense) | ||||
10 | Cash dividends | 13,560 | ||
Dividends payable | 13,560 (4) | |||
(To record the dividends payable) | ||||
11 | Allowance for doubtful accounts | 1,700 | ||
Accounts Receivable | 1,700 | |||
(To record the settlement of allowance for doubtful accounts) |
Table (1)
Working Notes:
Calculate the amount of preferred stock.
Total number of share issued = 1,200
Price per share = $40
Calculate the amount of paid-in capital.
Preferred stock = $48,000 (1)
Cash received for preferred stock = $49,200
Calculate the amount of treasury stock.
Number of shares purchased = 400
Price per share = $28
Calculate the amount of dividends payable.
Dividend per share (common stock) = $1.20
Common stock outstanding = 8,500
7% preferred stock = $3,360
Adjusting entries are the journal entries that are recorded at an end of an accounting period. It adjusts the income and expense account to comply with the accrual based accounting. This accounting system states that the revenues should be recognized when it is earned, and the expenses should be recognized when it is incurred, irrespective to cash received or paid for it.
To Record: The adjusting entries of Company H during 2017.
Explanation of Solution
Journalize the adjusting entries.
The following is the adjusting entry for the supplies during the year:
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Supplies Expense | 33,600 (5) | ||
Supplies Payable | 33,600 | |||
(To adjust for supplies expense) |
Table (2)
Working Note:
Calculate the amount of supplies expense.
Beginning balance = $4,400
Purchase = $35,100 (Refer Table 1)
Ending balance = $5,900
Description:
- Supplies expense is an expense and it is increased by $33,600. Therefore, debit supplies expense account with $33,600.
- Supplies payable is a liability and it is increased by $33,600. Therefore, credit supplies payable account with $33,600.
The following is the adjusting entry for the unearned revenue during the year:
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Unearned service revenue | 27,000 | ||
Service revenue | 27,000 (6) | |||
(To adjust for unearned service revenue) |
Table (3)
Working Note:
Calculate the amount of service revenue adjusted.
Fees collected in advance for April 2017 to March 2018 = $36,000
Months adjusted for unearned service revenue = 9 (April 2017 to December 2017)
Description:
- Unearned service revenue is a liability and it is decreased by $27,000. Therefore, debit unearned service revenue account with $27,000.
- Service revenue is revenue and it increases the value of equity by $27,000. Therefore, credit service revenue with $27,000.
The following is the adjusting entry for the bad debt expense during the year:
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | 3,700 (7) | |||
Allowance for doubtful accounts | 3,700 | |||
(To record the amount of bad debt expense for the year) |
Table (4)
Working Note:
Ending balance of allowance for doubtful accounts = $3,500
Amount written off as uncollectible = $1,700
Beginning balance of allowance for doubtful accounts = $1,500
Description:
- Bad debt expense is an expense and it is increased by $3,700. Therefore, debit bad debt expense account with $3,700.
- Allowance for doubtful accounts is a contra asset account and would have a credit balance. Therefore credit allowance for doubtful account with $3,700.
The following is the adjusting entry for the
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Depreciation Expense | 4,400 (8) | ||
Accumulated Depreciation - Building | 4,400 | |||
(To record the amount of depreciation for the year) |
Table (5)
Working Note:
Calculate the amount of depreciation expense.
Building value = $142,000
Salvage value = $10,000
Life of building = 30 years
Description:
- Depreciation expense is an expense and it is increased by $4,400. Therefore, debit depreciation expense account with $4,400.
- Accumulated Depreciation-Building is a contra asset account and would have a credit balance. Therefore credit accumulated depreciation-equipment account with $4,400.
The following is the adjusting entry for the accrued income tax for the year:
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Income Tax Expense | 35,130 | ||
Income Tax Payable | 35,130 | |||
(To record the amount of accrued income tax for the year) |
Table (6)
Description:
- Income tax expense is an expense and it is increased by $35,130. Therefore, debit income tax expense account with $35,130.
- Income tax payable is a liability and it is increased by $35,130. Therefore, credit income tax payable account with $35,130.
(b)
T Accounts: T- accounts are prepared for all the business transactions. First, journal entries are passed and then transferred to the respective ledger accounts where they are recorded, and summarized in either side of the ‘T’ format. It is divided into two parts by a vertical line, that is, the left side and the right side. The left side of the T-account is known as the debit side, and the right side of the T-account is known as the credit side. The account name appears on the top of the T-account.
To Post: The above journal entries and adjusting entries to T-accounts of Company H.
(b)
Explanation of Solution
The following are the T-accounts.
Cash Account:
Cash Account | |||||
Date | Particulars | Debit ($) | Date | Particulars | Credit ($) |
Beginning balance | 24,600 | Accounts Payable | 32,200 | ||
Preferred stock | 48,000 | Treasury stock | 11,200 | ||
Paid-in capital in Excess of par value – Preferred stock | 1,200 | Other operating expenses | 188,200 | ||
Common stock | 9,000 | Ending Balance | 175,200 | ||
Paid-in capital in Excess of par value – Common stock | 12,000 | ||||
Unearned service revenue | 36,000 | ||||
Accounts Receivable | 276,000 | ||||
Total | 406,800 | Total | 406,800 |
Table (7)
Accounts Receivable Account:
Accounts Receivable Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Beginning Balance | 45,500 | Cash | 276,000 | ||
Sales Revenue | 320,000 | Sales discounts | 1,700 | ||
Ending Balance | 87,800 | ||||
Total | 365,500 | Total | 365,500 |
Table (8)
Allowance for Doubtful Accounts:
Allowance for doubtful Accounts | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Accounts receivable | 1,700 | Beginning Balance | 1,500 | ||
Ending Balance | 3,500 | Bad debt expense | 3,700 | ||
Total | 5,200 | Total | 5,200 |
Table (9)
Supplies Account:
Supplies Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Beginning balance | 4,400 | Adjustment | 33,600 | ||
Accounts Payable | 35,100 | Ending Balance | 5,900 | ||
Total | 39,500 | Total | 39,500 |
Table (10)
Land Account:
Land Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Beginning balance | 40,000 | Ending Balance | 40,000 | ||
Total | 40,000 | Total | 40,000 |
Table (11)
Building Account:
Building Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Beginning balance | 142,000 | Ending Balance | 142,000 | ||
Total | 142,000 | Total | 142,000 |
Table (12)
Accumulated Depreciation - Building Account:
Accumulated Depreciation - Building Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 26,400 | Beginning balance | 22,000 | ||
Adjustment | 4,400 | ||||
Total | 26,400 | Total | 26,400 |
Table (13)
Accounts Payable Account:
Accounts Payable Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Cash | 32,200 | Beginning balance | 25,600 | ||
Ending Balance | 28,500 | Supplies | 35,100 | ||
Total | 60,700 | Total | 60,700 |
Table (14)
Income Tax Payable Account:
Income Tax Payable Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 35,130 | Adjustment | 35,130 | ||
Total | 35,130 | Total | 35,130 |
Table (15)
Unearned Service Revenue Account:
Unearned Service Revenue Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Adjustment | 27,000 | Cash | 36,000 | ||
Ending Balance | 9,000 | ||||
Total | 36,000 | Total | 36,000 |
Table (16)
Dividends Payable Account:
Dividends Payable Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 13,560 | Cash dividends | 13,560 | ||
Total | 13,560 | Total | 13,560 |
Table (17)
Preferred Stock Account:
Preferred Stock Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 48,000 | Cash | 48,000 | ||
Total | 48,000 | Total | 48,000 |
Table (18)
Paid-In Capital in Excess of Par Value - Preferred Stock Account:
Paid-In Capital in Excess of Par Value - Preferred Stock Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 1,200 | Cash | 1,200 | ||
Total | 1,200 | Total | 1,200 |
Table (19)
Common Stock Account:
Common Stock Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 89,000 | Beginning balance | 80,000 | ||
Cash | 9,000 | ||||
Total | 89,000 | Total | 89,000 |
Table (20)
Paid-In Capital in Excess of Par Value - Common Stock Account:
Paid-In Capital in Excess of Par Value - Common Stock Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 12,000 | Cash | 12,000 | ||
Total | 12,000 | Total | 12,000 |
Table (21)
Retained Earnings Account:
Retained Earnings Account | |||||
Date | Particulars | Debit ($) | Date | Particulars | Credit ($) |
Ending Balance | 127,400 | Beginning balance | 127,400 | ||
Total | 127,400 | Total | 127,400 |
Table (22)
Cash Dividends Account:
Cash Dividends Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Dividends payable | 13,560 | Ending Balance | 13,560 | ||
Total | 13,560 | Total | 13,560 |
Table (23)
Treasury Stock Account:
Treasury Stock Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
Cash | 11,200 | Ending Balance | 11,200 | ||
Total | 11,200 | Total | 11,200 |
Table (24)
Service Revenue Account:
Service Revenue Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Ending Balance | 347,000 | Accounts receivable | 320,000 | ||
Unearned Service Revenue | 27,000 | ||||
Total | 347,000 | Total | 347,000 |
Table (25)
Bad Debt Expense Account:
Bad Debt Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Adjustment | 3,700 | Ending Balance | 3,700 | ||
Total | 3,700 | Total | 3,700 |
Table (26)
Depreciation Expense Account:
Depreciation Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Adjustment | 4,400 | Ending Balance | 4,400 | ||
Total | 4,400 | Total | 4,400 |
Table (27)
Supplies Expense Account:
Supplies Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Adjustment | 33,600 | Ending Balance | 33,600 | ||
Total | 33,600 | Total | 33,600 |
Table (28)
Other Operating Expense Account:
Other Operating Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Cash | 188,200 | Ending Balance | 188,200 | ||
Total | 188,200 | Total | 188,200 |
Table (29)
Income Tax Expense Account:
Income Tax Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
Adjustment | 35,130 | Ending Balance | 35,130 | ||
Total | 35,130 | Total | 35,130 |
Table (30)
Trial balance: This is a statement prepared to show all the year-end account balances of a business. The balances are shown in separate columns as debit and credit. Trial balance is made to check whether books of accounts of the business are arithmetically accurate.
Prepare trial balance for Company H as on December 31, 2017.
Explanation of Solution
The following is the adjusted trial balance of Company H as on December 31, 2017.
Company H | ||
Adjusted Trial Balance | ||
At December 31, 2017 | ||
Account Title | Balance ($) | |
Debit | Credit | |
Cash | 175,200 | |
Accounts Receivable | 87,800 | |
Allowance for doubtful accounts | 3,500 | |
Supplies | 5,900 | |
Land | 40,000 | |
Buildings | 142,000 | |
Accumulated Depreciation – Buildings | 26,400 | |
Accounts Payable | 28,500 | |
Income Tax Payable | 35,130 | |
Unearned Service Revenue | 9,000 | |
Dividends payable | 13,560 | |
Preferred Stock | 48,000 | |
Paid-in capital in excess of par value- Preferred stock | 1,200 | |
Common Stock | 89,000 | |
Paid-in capital in excess of par value- Common stock | 12,000 | |
Retained Earnings | 127,400 | |
Cash dividends | 13,560 | |
Treasury Stock | 11,200 | |
Service Revenue | 347,000 | |
Bad Debt expense | 3,700 | |
Depreciation Expense | 4,400 | |
Supplies Expense | 33,600 | |
Other operating Expense | 188,200 | |
Income Tax Expense | 35,130 | |
Total | 740,690 | 740,690 |
Table (31)
Description:
The trial balance as shown in Table (31) is prepared after placing the journal entries and adjusting entries to the ledger account. It will show the ending balance of all the accounts. Here, the total debit balance is matched with the credit balance.
Therefore, the total debit balance and credit balance of Company H is $740,690
(c)
To Prepare: The income statement, retained earnings statement, and balance sheet of Company H for the year ended December 31, 2017.
(c)
Explanation of Solution
Prepare the income statement of Company H.
Income statement: This is a financial statement that shows the net income earned or net loss suffered by a company through reporting all the revenues earned and expenses incurred by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a profit and loss statement. The net income is the excess of revenue over expenses.
Company H | ||
Income Statement | ||
For the Year Ended December 31, 2017 | ||
Particulars | Amount ($) | Amount ($) |
Service revenue | 347,000 | |
Operating expenses | ||
Other operating expenses | 188,200 | |
Supplies expense | 33,600 | |
Depreciation expense | 4,400 | |
Bad debt expense | 3,700 | |
Total operating expenses | 229,900 | |
Income before taxes | 117,100 | |
Income tax expense | 35,130 | |
Net income | 81,970 |
Table (32)
Prepare a retained earnings statement of Company H for the year ended December 31, 2017.
Retained Earnings Statement is one of the financial statement, which shows the amount of the net income retained by a company at a particular point of time for reinvestment and used to pay its debts and obligations. It shows the amount of earnings that is not paid as dividends to the shareholders.
Company H | |
Retained Earnings Statement | |
For the Year Ended December 31, 2017 | |
Details | Amount ($) |
Beginning Balance of Retained earnings | 127,400 |
Add: Net Income for the year | 81,970 |
Total Retained Earnings | 209,370 |
Less: Dividends | (13,560) |
Ending balance of Retained Earnings | 195,810 |
Table (33)
Prepare the balance sheet of Company H for the year ended December 31, 2017.
The balance sheet: This is a financial statement that shows the assets, liabilities, and stockholders’ equity of a company at a particular point of time. It reveals the financial health of a company. Thus, this statement is also called as the Statement of Financial Position. It helps the users to know about the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities.
Company H | |||
Balance Sheet | |||
As of December 31, 2017 | |||
Assets |
Amount ($) |
Amount ($) |
Amount ($) |
Current assets: | |||
Cash | 175,200 | ||
Accounts receivable | 87,800 | ||
Less: Allowance for doubtful accounts | (3500) | 84,300 | |
Supplies | 5,900 | ||
Total current assets | 265,400 | ||
Property, plant, and equipment: | |||
Land | 40,000 | ||
Buildings | 142,000 | ||
Less: Accumulated Depreciation Building | (26,400) | 115,600 | 155,600 |
Total Assets | 421,000 | ||
Liabilities and Stockholders’ Equity | |||
Current liabilities: | |||
Accounts payable | 28,500 | ||
Income taxes payable | 35,130 | ||
Dividends payable | 13,560 | ||
Unearned service revenue | 9,000 | ||
Total current liabilities | 86,190 | ||
Stockholders’ Equity: | |||
Paid-in capital | |||
Capital stock | |||
Preferred stock | 48,000 | ||
Common stock | 89,000 | ||
Total capital stock | 137,000 | ||
Additional paid-in capital: | |||
Paid-in capital in excess of par value—preferred stock | 1,200 | ||
Paid-in capital in excess of par value—common stock | 12,000 | ||
Total additional paid-in capital | 13,200 | ||
Total paid-in capital | 150,200 | ||
Retained earnings | 195,810 | ||
Total paid-in capital and retained earnings | 346,010 | ||
Less: Treasury stock (400 shares) | (11,200) | ||
Total Stockholders’ Equity | 334,810 | ||
Total Liabilities and Stockholders’ Equity | 421,000 |
Table (34)
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Chapter 11 Solutions
FINANCIAL ACCT.:TOOLS...(LL)-W/ACCESS
- Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 2016, were as follows: a. Issued 15,000 shares of 20 par common stock at 30, receiving cash. b. Issued 4,000 shares of 80 par preferred 5% stock at 100, receiving cash. c. Issued 500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. d. Declared a quarterly dividend of 0.50 per share on common stock and 1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. e. Paid the cash dividends declared in (d). f. Purchased 7,500 shares of Solstice Corp. at 40 per share, plus a 150 brokerage commission. The investment is classified as an available-for-sale investment. g. Purchased 8,000 shares of treasury common stock at 33 per share. h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for 24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment. i. Declared a 1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued. j. Paid the cash dividends to the preferred stockholders. k. Received 27,500 dividend from Pinkberry Co. investment in (h). l. Purchased 90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of 375. The bonds are classified as a heldtomaturity long-term investment. m. Sold, at 38 per share, 2,600 shares of treasury common stock purchased in (g). n. Received a dividend of 0.60 per share from the Solstice Corp. investment in (f). o. Sold 1,000 shares of Solstice Corp. at 45, including commission. p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method. q. Accrued interest for three months on the Dream Inc. bonds purchased in (l). r. Pinkberry Co. recorded total earnings of 240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. s. The fair value for Solstice Corp. stock was 39.02 per share on December 31, 2016. The investment is adjusted to fair value, using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero. Instructions 1. Journalize the selected transactions. 2. After all of the transactions for the year ended December 31, 2016, had been posted [including the transactions recorded in part (1) and all adjusting entries], the data that follows were taken from the records of Equinox Products Inc. a. Prepare a multiple-step income statement for the year ended December 31, 2016, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were 100,000. (Round earnings per share to the nearest cent.) b. Prepare a retained earnings statement for the year ended December 31, 2016. c. Prepare a balance sheet in report form as of December 31, 2016.arrow_forwardChen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. Open the file STOCKEQ from the website for this book at cengagebrain.com. Enter the formulas in the appropriate cells on the worksheet. Then fill in the columns to show the effect of each of the selected transactions and events listed earlier. Enter your name in cell A1. Save the completed worksheet as STOCKEQ2. Print the worksheet. Also print your formulas. Check figure: Total stockholders equity balance at 12/31/12 (cell G21). 398,800.arrow_forwardChen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. In the space provided below, prepare the stockholders equity section of Chen Corporations balance sheet as of December 31, 2012. Use proper headings and provide full disclosure of all appropriate information. Chens corporate charter authorizes the issuance of 1,000 shares of preferred stock and 100,000 shares of common stock.arrow_forward
- Chen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements.arrow_forwardThe following selected transactions and events occurred during 2013: a. Issued 200 shares of preferred stock for 20,000. b. Sold 800 shares of treasury stock for 2,800. c. Declared and issued a 4% common stock dividend. The market value on the date of declaration was 5 per share. d. Generated a net loss for the year of 16,000. e. Declared and paid the full years dividend on all the preferred stock and a dividend of 15 per share on common stock outstanding at the end of the year. Enter beginning balances for 2013 on STOCKEQ2. Then erase all 2012 entries and enter the transactions for 2013. Save the results as STOCKEQ4. Print the results.arrow_forwardLyon Company shows the following condensed income statement information for the year ended December 31, 2019: Lyon declared dividends of 6,000 on preferred stock and 17,280 on common stock. At the beginning of 2019, 10,000 shares of common stock were outstanding. On May 1, 2019, the company issued 2,000 additional common shares, and on October 31, 2019, it issued a 20% stock dividend on its common stock. The preferred stock is not convertible. Required: 1. Compute the 2019 basic earnings per share. 2. Show the 2019 income statement disclosure of basic earnings per share. 3. Draft a related note to accompany the 2019 financial statements.arrow_forward
- Raun Company had the following equity items as of December 31, 2019: Preferred stock, 9% cumulative, 100 par, convertible Paid-in capital in excess of par value on preferred stock Common stock, 1 stated value Paid-in capital in excess of stated value on common stock| Retained earnings The following additional information about Raun was available for the year ended December 31, 2019: 1. There were 2 million shares of preferred stock authorized, of which 1 million were outstanding. All 1 million shares outstanding were issued on January 2, 2016, for 120 a share. The preferred stock is convertible into common stock on a 1-for-1 basis until December 31, 2025; thereafter, the preferred stock ceases to be convertible and is callable at par value by the company. No preferred stock has been converted into common stock, and there were no dividends in arrears at December 31, 2019. 2. The common stock has been issued at amounts above stated value per share since incorporation in 2002. Of the 5 million shares authorized, 3,580,000 were outstanding at January 1, 2019. The market price of the outstanding common stock has increased slowly but consistently for the last 5 years. 3. Raun has an employee share option plan where certain key employees and officers may purchase shares of common stock at 100% of the marker price at the date of the option grant. All options are exercisable in installments of one-third each year, commencing 1 year after the date of the grant, and expire if not exercised within 4 years of the grant date. On January 1, 2019, options for 70,000 shares were outstanding at prices ranging from 47 to 83 a share. Options for 20,000 shares were exercised at 47 to 79 a share during 2019. During 2019, no options expired and additional options for 15,000 shares were granted at 86 a share. The 65,000 options outstanding at December 31, 2019, were exercisable at 54 to 86 a share; of these, 30,000 were exercisable at that date at prices ranging from 54 to 79 a share. 4. Raun also has an employee share purchase plan whereby the company pays one-half and the employee pays one-half of the market price of the stock at the date of the subscription. During 2019, employees subscribed to 60,000 shares at an average price of 87 a share. All 60,000 shares were paid for and issued late in September 2019. 5. On December 31, 2019, there was a total of 355,000 shares of common stock set aside for the granting of future share options and for future purchases under the employee share purchase plan. The only changes in the shareholders equity for 2019 were those described previously, the 2019 net income, and the cash dividends paid. Required: Prepare the shareholders equity section of Rauns balance sheet at December 31, 2019. Substitute, where appropriate, Xs for unknown dollar amounts. Use good form and provide full disclosure. Write appropriate notes as they should appear in the publisher financial statements.arrow_forwardOutstanding Stock Lars Corporation shows the following information in the stockholders equity section of its balance sheet: The par value of common stock is S5, and the total balance in the Common Stock account is $225,000. There are 13,000 shares of treasury stock. Required: What is the number of shares outstanding? Use the following information for Exercises 10-58 and 10-59: Stahl Company was incorporated as a new business on January 1, 2019. The company is authorized to issue 600,000 shares of $2 par value common stock and 80,000 shares of 6%, S20 par value, cumulative preferred stock. On January 1, 2019, the company issued 75,000 shares of common stock for $15 per share and 5,000 shares of preferred stock for $25 per share. Net income for the year ended December 31, 2019, was $500,000.arrow_forwardOn January 1, 2019, Kittson Company had a retained earnings balance of 218,600. It is subject to a 30% corporate income tax rate. During 2019, Kittson earned net income of 67,000, and the following events occurred: 1. Cash dividends of 3 per share on 4,000 shares of common stock were declared and paid. 2. A small stock dividend was declared and issued. The dividend consisted of 600 shares of 10 par common stock. On the date of declaration, the market price of the companys common stock was 36 per share. 3. The company recalled and retired 500 shares of 100 par preferred stock. The call price was 125 per share; the stock had originally been issued for 110 per share. 4. The company discovered that it had erroneously recorded depreciation expense of 45,000 in 2018 for both financial reporting and income tax reporting. The correct depreciation for 2018 should have been 20,000. This is considered a material error. Required: 1. Prepare journal entries to record Items 1 through 4. 2. Prepare Kittsons statement of retained earnings for the year ended December 31, 2019.arrow_forward
- The following selected accounts appear in the ledger of EJ Construction Inc. at the beginning of the current fiscal year: During the year, the corporation completed a number of transactions affecting the stockholders equity. They are summarized as follows: a. Issued 500,000 shares of common stock at 8, receiving cash. b. Issued 10,000 shares of preferred 1% stock at 60. c. Purchased 50,000 shares of treasury common for 7 per share. d. Sold 20,000 shares of treasury common for 9 per share. e. Sold 5,000 shares of treasury common for 6 per share. f. Declared cash dividends of 0.50 per share on preferred stock and 0.08 per share on common stock. g. Paid the cash dividends. Instructions Journalize the entries to record the transactions. Identify each entry by letter.arrow_forwardKent Corporation was organized on January 1, 2014. On that date, it issued 200,000 shares of 10 par value common stock at 15 per share (400,000 shares were authorized). During the period January 1, 2014, through December 31, 2019, Kent reported net income of 750,000 and paid cash dividends of 380,000. On January 5, 2019, Kent purchased 12,000 shares of its common stock at 12 per share. On December 28, 2019, 8,000 treasury shares were sold at 8 per share. Kent used the cost method of accounting for treasury shares. What is Kents total shareholders equity as of December 31, 2019? a. 3,290,000 b. 3,306,000 c. 3,338,000 d. 3,370,000arrow_forward
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