Alex Kerr has been running Kerr Consulting as a proprietorship but is planning to expand operations in the near future. In Chapter 12 , Alex had considered taking on a partner, but decided not to form a partnership after all. To raise cash for future expansion, he has now decided to incorporate and create Kerr Consulting Corporation. He has gone through all the legal steps to incorporate his business; as of February 1, 2014, Kerr Consulting Corporation is authorized to issue an unlimited number of common shares and 50,000 $2.00 preferred shares.
The Kerr Consulting January 31, 2014, balance sheet appears below. All amounts in the accounting records reflect current market value.
Kerr Consulting
Assets
Cash..................................................................$32,350
Accounts receivable....................................................4,900
Inventory...............................................................2,713
Supplies...................................................................100
Prepaid rent............................................................2,000
Equipment..............................................................2,000
Accumulated amortization-equipment..............................(66)
Furniture................................................................6,000
Accumulated amortization-furniture..............................(200)
Total assets..........................................................$49,797
Liabilities and Equity
Accounts payable...................................................$10,700
Salary payable.........................................................1,400
Unearned service revenue............................................1,333
Alex Kerr, capital....................................................36,364
Total liabilities and capital........................................$49,797
Required
1. Create the journal entry to record the incorporation of the business on February 1, 2014. To do this, you need to record each asset and liability account at its current market value. For equipment and furniture, this would be the net book value of each-there would not be any accumulated amortization accounts at the beginning of the new corporation's life. The Alex Kerr, Capital balance would become the value of the 20,000 common shares Alex issues to himself.
2. To raise $50,000 in additional cash, Kerr Consulting Corporation issued 1,000 of the preferred shares for $50.00 per share on February 1, 2014. Journalize this transaction. 3. Kerr Consulting Corporation incurred $1,500 in legal fees and incorporation fees to organize the corporation under the Canada Business Corporations Act in Ontario. Prepare the journal entry for these organization costs.