Question

Kamsack Inc. (Kamsack) was formed in July 2017 to distribute imports from China. During its first year Kamsack had the following equity transactions:
i. Issued 100,000 common shares to its two shareholders for $10 per share.
ii. Issued 50,000 common shares to the owner of a Chinese company for the exclusive distribution rights in Canada for certain products made by companies she owned. The value of the shares and the exclusive rights is estimated to be about $400,000.
iii. Issued 1,500 preferred shares for $100 each. The preferred shares pay no dividends but must be repurchased by Kamsack within five years for $150 per share.
iv. For the year ended June 30, 2018, Kamsack reported a net loss of $50,000.

Required:
a. Prepare the journal entries need to recorded events (i), (ii), and (iii).
b. Prepare Kamsack's equity section as it should be reported on its June 30, 2018 balance sheet.
c. Can Kamsack pay a dividend on June 30, 2018? Explain your answer. (Think carefully; this question is tricky.)



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  • CreatedFebruary 26, 2015
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