Southern Exposure Ltd. begins operations on January 2, 2016. During the year, th

Question

Southern Exposure Ltd. begins operations on January 2, 2016. During the year, the following transactions affect shareholders’ equity:

1. Southern Exposure’s articles of incorporation authorizes the issuance of 962,800 common shares, and the issuance of 97,700 preferred shares, which pay an annual dividend of $1.80 per share. 2. A total of 251,840 common shares are issued for $4 a share. 3. A total of 14,260 preferred shares are issued for $13 per share. 4. The full annual dividend on the preferred shares is declared. 5. The dividend on the preferred shares is paid. 6. A dividend of $0.10 per share is declared on the common shares but is not yet paid. 7. The company has net income of $164,200 for the year. (Assume sales of $727,200 and total operating expenses of $563,000.) 8. The dividends on the common shares are paid. 9. The closing entry for the dividends declared accounts is prepared. No. Account and explanation Debit Credit 3. 7 (To close revenue account.) (To close expense account.) (To close net income.)

Explanation / Answer

Sr. No.

Particulars

Debit

Credit

1

No Entry Required

-

-

2

Cash

$1,007,360.00

Common Stock

$1,007,360.00

(251840Shares x $4)

3

Cash

$185,380.00

Preferred Stock

$185,380.00

(14260 Shares x $13)

4

Dividend- Preffered Stock

$25,668.00

Dividend Payable

$25,668.00

(14260 pref. shares x 1.80$)

5

Dividend Payable

$25,668.00

Cash

$25,668.00

6

Dividend- Common stock

$25,184.00

Dividend Payable

$25,184.00

($0.10 x 251840 shares)

7

Sales Revenue

$727,200.00

Income summary

$727,200.00

Income summary

$563,000.00

Expenses

$563,000.00

Income summary

$164,200.00

Retained Earnings

$164,200.00

8

Dividend Payable

$25,184.00

Cash

$25,184.00

9

Dividend- Pref shares

$25,668.00

Dividend- Common Stock

$25,184.00

Retained Earnings

$50,852.00

Shareholders Capital

Common shares

$1,007,360.00

preffered Shares

$185,380.00

retained Earnings

$113,348.00

Total

$1,306,088.00

Sr. No.

Particulars

Debit

Credit

1

No Entry Required

-

-

2

Cash

$1,007,360.00

Common Stock

$1,007,360.00

(251840Shares x $4)

3

Cash

$185,380.00

Preferred Stock

$185,380.00

(14260 Shares x $13)

4

Dividend- Preffered Stock

$25,668.00

Dividend Payable

$25,668.00

(14260 pref. shares x 1.80$)

5

Dividend Payable

$25,668.00

Cash

$25,668.00

6

Dividend- Common stock

$25,184.00

Dividend Payable

$25,184.00

($0.10 x 251840 shares)

7

Sales Revenue

$727,200.00

Income summary

$727,200.00

Income summary

$563,000.00

Expenses

$563,000.00

Income summary

$164,200.00

Retained Earnings

$164,200.00

8

Dividend Payable

$25,184.00

Cash

$25,184.00

9

Dividend- Pref shares

$25,668.00

Dividend- Common Stock

$25,184.00

Retained Earnings

$50,852.00

Shareholders Capital

Common shares

$1,007,360.00

preffered Shares

$185,380.00

retained Earnings

$113,348.00

Total

$1,306,088.00

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