5. Early in the year Bill Barnes and several friends organized a corporation cal

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

date Accounts Title Dr Cr 6-Jan Cash (20000*14) $280,000 Common stock (20000*2) $40,000 Paid in capital in excess of par-Common stock 240000 7-Jan Organization expenses 7000 Common stock (500*2) $1,000 Paid in capital in excess of par-Common stock 6000 12-Jan Cash $250,000 Preferred stock (20000*2) $250,000 4-Jun Land $225,000 Common stock (15000*2) $30,000 Paid in capital in excess of par-Common stock 195000 (15000*13) 15-Nov Cash dividend $25,000 Preferred dividend payable (2500*10) $25,000 20-Dec Preferred dividend payable (2500*10) $25,000 Cash $25,000 31-Dec Income Summary $147,200 Retained Earnings $147,200 Stockholder Equity Preferred Stock 250000 Common stock $71,000 Paid in capital in excess of par-Common stock 441000 Total paid in capital 762000 Retained Earnings (147200-25000) $122,200 Total stockholder equity $884,200

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