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. Jan. 7 Issued an additional 500 shares of common stock to Sharnes in exchange for his services in organizing the corporation. The stockholders agreed that these services were worth $7,000. Jan. 12 Issued 2,500 shares of preferred stock for cash of $250,000. June 4 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 purposes of this transaction at $15 per share. Nov. 15 The first annual dividend of $10 per share was declared on the preferred stock to be paid December 20. Dec. 20 Paid the cash dividend declared on November 15. Dec. 31 After the revenue and expenses were closed into the Income Summary account, that account indicated a net income of $147,200. Required: 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 31.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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.
Jan.	7	Issued an additional 500 shares of common stock to Sharnes in exchange for his services in organizing the corporation. The stockholders agreed that these services were worth $7,000.
Jan.	12	Issued 2,500 shares of preferred stock for cash of $250,000.
June	4	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 purposes of this transaction at $15 per share.
Nov.	15	The first annual dividend of $10 per share was declared on the preferred stock to be paid December 20.
Dec.	20	Paid the cash dividend declared on November 15.
Dec.	31	After the revenue and expenses were closed into the Income Summary account, that account indicated a net income of $147,200.

Required:

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 31.

Expert Solution

Step 1

Part (a)

In the Books of S Coporporation Inc
Journal Entries
			In($)
Date	Particulars	Amount(Dr)	Amount(Cr)
Jan-06	Cash A/c Dr (20000*14)	280000
	To Common Stock (20000*2)		40000
	To Additional Paid in Capital/ Stock Premium (20000*12)		240000
	(Being Shares Issued)

Jan-07	Organixation Expenses A/c dr	7000
	To Common Stock (500*2)		1000
	To Additional Paid in Capital/ Stock Premium (500*12)		6000
	(Being Common Stokc issued aginst organization expense )

Jan-12	Cash A/c Dr ( 2500 * 100)	250000
	To Preferred Stock A/c		250000
	(Being Preferred Stock issued)

Jun-04	Land A/c Dr ( 15000 *15)	225000
	To Common Stock (15000*2)		30000
	To Additional Paid in Capital/ Stock Premium (15000*13)		195000
	(Being Common Stokc issued vagainst land )

Nov-15	Dividends A/c Dr (2500 *10)	25000
	To Dividend Payable A/c		25000
	(Being dividend declared on preffered stock)

Dec-20	Dividend Payable A/c Dr	25000
	To Cash A/c		25000
	(Being dividend Paid )

Dec-31	Income & Expenses A/c / Profit & Loss A/c Dr	147200
	To Retained Earning		147200
	( Being Net Income transferred to Income summary)
Dec-31	Reatined Earning A/c Dr	25000
	To Dividend A/c		25000
	( Being dividend A/c Closed)

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