The Equitee Corporation was incorporated on January 2, 2015, with two classes of share capital: an unlimited number of common shares and $3 cumulative non-voting preferred shares with an authorized limit of 50,000.
During the first year of operations, the following transactions occurred:
1. The company issued 3,000 preferred shares for a total of $75,000 cash, and 10,000 common shares for $20 per share.
2. It issued 4,000 common shares in exchange for a parcel of land with an estimated fair market value of $120,000.
3. The company had sales of $1,050,000 and incurred operating expenses of $925,000 during the year.
4. No dividends were declared during the first year of operations.
During the second year of operations, the following transactions occurred:
5. In November, the company’s board of directors declared cash dividends sufficient to pay a dividend of $4 on each common share. The dividends were payable on December 14.
6. In December, the cash dividends from November were paid.
7. In December, the board of directors declared and distributed a 10% stock dividend on the common shares.
The estimated market value of the common shares at the time was $24 per share.
8. The company had sales of $1,200,000 and incurred $1,025,000 in operating expenses during the second year.
a. Prepare journal entries to record the above transactions, including closing entries for net income and dividends declared in transactions 3, 5, 7 and 8. Use a spreadsheet or table format like the one in the first practice problem to track the changes in all of the shareholders’ equity accounts over the two-year period. Prepare the shareholders’ equity section of the statement of financial position at the end of the second year.
b. Why would the owners have designated the preferred shares as non-voting?

  • CreatedJune 12, 2015
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