Ssignment Name Question 4 McNaab Corp. began operations of equity on December 31

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Ssignment Name Question 4 McNaab Corp. began operations of equity on December 31, 2009 in 2009. its balance shost reported the following components McNaab Corp. Equity Section of the Balance Shoet December 31, 2009 Contributed caplital: Preferred shares, $1.50 non-cumulative, unilimited shares authorized 25,000 shares Issued and outstanding Common shares, uimted shares ??thoraad; 650,000 162,500 shares issued and outstanding Total contributed capltal Retained eamings. Total equity $2,112,500 567,500 $2,680,000 The corporation completed these transactions during 2010 and 2011 2010 Jan. 1 Sold 50,000 common shares at $9.50 per share 5 The directors declared the first cash dividend totalling $159,375 payable on Feb. 28 to the Feb. 5 shareholders of record. Fab. 28 Pald the dividends declared on January S uy1 Issued prefemed shares for a total of $405,000. The average ssue price was Dec. 31 Closed the dividend accounts along with the Income Summary account, Sept. S The directors declaned a $1.50 cash dividend per prefered share and a Oct. 28 Pald the dividends declared on September S 27.00 per share. which refiected net income earned during 2010 of $640,000 S0.75 per common share cash dividend payable on Oct. 28 to the Oct. 5 2011 shareholdors of record. Dec. 31 Closed the dividend accounts along with the $200,000 debit balance in the Income Summary account. Required 1. Prepare journal entries to record the transactions and dosings for 2010 and 2011. 2. Prepare the statement of changes in equity for the year ended December 31, 2011 3. Prepare the equity section of the company's balance shoet as of December 31, 2011 equity section of the company's balance sheet as of December 31, 2011

Explanation / Answer

1. jJournal Entries

2010

Jan.1 Bank a/c ..................Dr 475000

To common shares a/c 450000(50000 shares)

To Security Premium 25000

Jan 5. Dividend a/c ...............................Dr 159375

To Dividend payable a/c 159375

Jan.28 Dividend payable a/c ................Dr 159375

To bank a/c 159375

July.1 Bank a/c.....................Dr 405000

To preferred shares 405000(15000 shares@27/share)

Dec.31 Income summary ............ Dr 159375

To dividend a/c 159375

Dec.31 Income summary ...........Dr 640000

To capital a/c 640000

2011

Sep.5 Dividend a/c..........Dr 219375(40000*1.5+212500*0.75)

To dividend payable a/c 219375

Oct.28 Dividend payable a/c .........Dr 219375

To cash a/c 219375

Dec.31 Income summary...............Dr 219375

To dividend 219375

Drawings .............Dr 200000

To income summary 200000

2. Statement of change in equity

Issue of capital(common)

(preferred)

475000

405000

475000

405000

  

3. Equity section of balance sheet on 31.12.2011

Contributed capital

Preferred shares 1055000

Common capital 1937500

Total capital 2992500

Retained earnings 628750

Total equity 3621250

Share Capital Retained Earnings Total Balance as on 1.1.10 2112500 567500 2680000

Issue of capital(common)

(preferred)

475000

405000

475000

405000

Dividend paid    (159375) (159375) Profit Earned 640000 640000 Balance as on 31.12.2010 2992500 1048125 4040625 Balance as on 1.1.2011 2992500 1048125 4040625

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