5. Early in the year Bill Barnes and several friends organized a corporation cal
ID: 2526755 • Letter: 5
Question
5. Early in the year Bill Barnes and several friends organized a corporation called Barnes Communications, Inc. The corporation was authorized to issue 50,000 shares of $100 par value, 10% 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 Barnes and 10 other investors.
Jan. 7 Issued an additional 500 shares of common stock to Barnes 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 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 financial statements were prepared, the net income for the year was $147,200.
a. Prepare journal entries to record the above transactions.
b. Prepare the stockholders’ equity section of the Barnes Communications, Inc. balance sheet at December 31, 2016.
Explanation / Answer
a.
Date
General Journal
Debit
Credit
Jan 6
Cash
280000
Common stock
40000
Additional paid in capital:
Common stock
240000
Issued 20,000 shares of $2 par value common stock
at $14 per share.
Jan 7
Organization Costs Expense
7000
Common stock
1000
Additional paid in capital:
Common stock
6000
Issued 500 shares of common stock to Barnes in exchange for services relating to formation of the corporation. Implied issuance price ($7,000 ÷ 500 shares) = $14 per share.
Jan 12
Cash
250000
10% Cumulative Preferred Stock
250000
Issued 2,500 shares of $100 par value, 10%, cumulative preferred stock at par value
June 4
Land
225000
Common Stock
30000
Additional Paid-in Capital: Common Stock
195000
Issued 15,000 shares of common stock in exchange for land valued at $225,000 (15,000 shares x $15).
Nov 15
Dividends (Preferred Stock)
25000
Dividends Payable
25000
To record declaration of annual dividends of $10 per share on 2,500 preferred shares outstanding.
Dec 20
Dividends Payable
25000
Cash
25000
To record payment of dividend declared Nov. 15.
Dec 31
Income Summary
147200
Retained Earnings
147200
To close the Income Summary account for the year.
Dec 31
Retained Earnings
25000
Dividends
25000
To close the Dividends account.
b.
BARNES COMMUNICATIONS, INC.
PARTIAL BALANCE SHEET
DECEMBER 31 2016
Stockholders' equity:
10% cumulative preferred stock, $100 par, authorized50,000 shares, issued and outstanding 2,500 shares
$250000
Common stock, $2 par, authorized 400,000 shares, issued and outstanding 35,500 shares
71000
Additional paid-in capital: Common stock
441000
Total paid-in capital
762000
Retained earnings*
122200
Total stockholders' equity
$884200
*Computation of retained earnings at December 31, 2016:
Net income in 2016
$147200
Less: Preferred dividends in 2016
(25000)
Retained Earnings
$122200
Date
General Journal
Debit
Credit
Jan 6
Cash
280000
Common stock
40000
Additional paid in capital:
Common stock
240000
Issued 20,000 shares of $2 par value common stock
at $14 per share.
Jan 7
Organization Costs Expense
7000
Common stock
1000
Additional paid in capital:
Common stock
6000
Issued 500 shares of common stock to Barnes in exchange for services relating to formation of the corporation. Implied issuance price ($7,000 ÷ 500 shares) = $14 per share.
Jan 12
Cash
250000
10% Cumulative Preferred Stock
250000
Issued 2,500 shares of $100 par value, 10%, cumulative preferred stock at par value
June 4
Land
225000
Common Stock
30000
Additional Paid-in Capital: Common Stock
195000
Issued 15,000 shares of common stock in exchange for land valued at $225,000 (15,000 shares x $15).
Nov 15
Dividends (Preferred Stock)
25000
Dividends Payable
25000
To record declaration of annual dividends of $10 per share on 2,500 preferred shares outstanding.
Dec 20
Dividends Payable
25000
Cash
25000
To record payment of dividend declared Nov. 15.
Dec 31
Income Summary
147200
Retained Earnings
147200
To close the Income Summary account for the year.
Dec 31
Retained Earnings
25000
Dividends
25000
To close the Dividends account.
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