2. On January 1, 2015, Sizzler’s Corporation was granted a charter that authoriz

Question

2. On January 1, 2015, Sizzler’s Corporation was granted a charter that authorized the issuance of 100,000 shares of $5 par value ordinary shares and 20,000 shares of $80 par value, 6% cumulative and non-participating preference shares. During the year, the following transactions took place.

Jan 15 The Corporation issued 18,000 ordinary shares at $10 per share.

Feb 9 Issued 3,000 ordinary shares to attorneys in payment for services rendered in the company’s incorporation. The bill amounted to $20,000.

Mar 21 4,000 preference shares were issued for cash at $90 per share.

April 4 Issued 9,000 ordinary shares for land to the founders of the corporation. The asking price of the land was $56,000; the fair value of the land was $63,000.

May 27 Purchased 5,000 ordinary shares at $12 per share. (Use the Cost method)

June 18 The Corporation issued 10,000 ordinary shares and 3,000 preference shares for a lump sum of $350,000. The ordinary share has a market value of $10 and the preference share has a market value of $120 per share.

Sept. 19 Sold the 5,000 treasury shares at $8 per share.

Dec 31 The Corporation declared $0.40 per cash dividend on its ordinary shares and declared the preference dividend.

Instructions

a) Record the journal entries for each transaction above. (25 marks)

b) Prepare the Equity Section of Sizzler’s Corporation Statement of Financial Position as at December 31, 2015. (Note: On December 31, 2015, the Income Summary Account was closed with a Net Income of $250,600). (10 marks)

Explanation / Answer

JOURNAL ENTRY Date Account Title and explanation Debit Credit Jan 15 Cash $180,000 (1800*10) Common shares (par value $5) $90,000 (18000*5) Additional Paid in Capital-Common stock $90,000 (180000-90000) (To record issuance of18000 common stock at$10 each) Feb 9 Accounts payable $20,000 Common shares (par value $5) $15,000 (3000*5) Additional Paid in Capital-Common stock $5,000 (20000-15000) (To record issuance of3000 common stock against accounts payable) March 21 Cash $360,000 (4000*90) 6% cumulative preference shares $320,000 (4000*80) Additional paid in capital-preference shares $40,000 (360000-320000) (To record issuance of 4000 6% Cumulative preference shares at $90 each) April4 Land $63,000 Common shares (par value $5) $45,000 (9000*5) Additional Paid in Capital-Common stock $18,000 (63000-45000) (To record issuance of9000 common stock against Land asset) May 27 Treasury Stock $60,000 (5000*12) Cash $60,000 (To record purchase of 5000Treasury stocks ) Market value of ordinary shares=10000*10= $100,000 Market value of preference shares=3000*120= 360000 Total $460,000 Amount received $350,000 (350000/460000)= 0.7608696 Common shares Price $76,087 (0.7608696*100000) Preference price 273913 (0.7608696*360000) June 18 Cash $350,000 Common Shares $50,000 (10000*5) 6% CumulativePreference shares $240,000 (3000*80) Additional Paid in Capital-Common stock $26,087 (76087-50000) Additional paid in capital-preference shares $33,913 (273913-240000) (to record issuance of common shares and Preference shares at Limpsum $350000) Sep 9 Cash $40,000 (5000*8) Additional paid in capital-common stock $20,000 (60000-40000) Treasury stock $60,000 (To redord sale of treasury stock for $8 each) Dec 31 Retained Earnings $          49,600 (16000+33600) Dividend payable-Ordinary shares $        16,000 (0.4*(18000+3000+9000+10000) 40000 Dividend payable-Preference shares $        33,600 (0.06*80*(4000+3000) 7000 (To record declaration of dividends ) (b) EQUITY SECTION OF SIZZLERS CORPORATION BALANCE SHEET AS AT DECEMBER 31, 2015 SHAREHOLDERS EQUITY Paid In Capital: Preferred stock-6% cumulative and non participating $560,000 (7000*80) $        560,000 Common stock $200,000 (40000*5) $        200,000 Additional paid in capital-Preferred stock $          73,913 (40000+33913) Additional paid in capital-Common Stock $        119,087 (90000+5000+18000+26087-20000) Retained Earning $        201,000 (250600-16000-33600) Total Stockholders Equity $1,154,000

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