Question

Perfect Ponds Incorporated is a backyard pond design and installation company. The company was incorporated during 2011, with 1 million common shares, and 50,000 preferred shares with a $3 dividend rate. Perfect Ponds follows private enterprise GAAP. The following transactions took place during the first year of operations with respect to these shares:
Jan. 1 The articles of incorporation are filed and state that 1 million common shares and 50,000 preferred shares are authorized. Jan. 15 30,000 common shares were sold by subscription to three individuals, who each purchased 10,000 shares for $50 per share. The terms require 10% of the balance to be paid in cash immediately. The balance was to be paid by December 31, 2012, at which time the shares will be issued.
Feb. 20 70,000 common shares were sold by subscription to seven individuals, who each purchased 10,000 shares for $50 per share. The terms require that 10% of the balance be paid in cash immediately, with the balance to be paid by December 31, 2011. Shares are to be issued once the full payment had been received.
Mar. 3 50,000 common shares were sold by an underwriter for $52 per share. The underwriter charged a 5% commission on the sale.
May 10 The company paid $2,000 to a printing company for costs involved in printing common share certificates. As well, an invoice for legal fees related to the issue of common shares was received for $15,000.
Sept. 23 The company issued a combination of 2,000 common and 1,000 preferred shares to a new shareholder for a total price of $200,000. The company was unable to estimate a fair value of the preferred shares, and the most recent sale of common shares was used to estimate the value of the common share portion of the transaction.
Nov. 28 The company wanted to recognize the efforts of a key employee, and offered him the opportunity to purchase 500 common shares for $52, to be paid by December 31, 2012. No interest was to be charged on the outstanding balance; however, the shares were issued immediately.
Dec. 31 Of the seven subscriptions issued on February 20, five subscriptions were paid in full and two subscribers defaulted. According to the subscription contract, the defaulting subscribers would not be issued shares for any amount that had been paid and no money would be refunded.
Dec. 31 The Company declared a dividend of $200,000 for 2011. Net income for the year was $800,000.
Instructions
(a). Prepare the journal entries to record the transactions for the year.
(b). Prepare the shareholders’ equity section of the balance sheet as of December 31, 2011.


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  • CreatedAugust 23, 2015
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