$41$

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Problem $12-7$A Share transactions, statement of changes in equity, dividend distribution, closing LO$2,3,4,5,6$

Hammond Manufacturing Inc. was legally incorporated on January $2,2023.$ Its articles of incorporation granted it the right to issue an unlimited number of common shares and $100,000$ shares of $$14\mathrm{.}0$ non$-$cumulative preferred shares. The following transactions are among those that occurred during the first three years of operations:

$2023$

Jan. $12$ Issued $40,400$ common shares at $$5\mathrm{.}6$ each.

$20$ Issued $3,000$ common shares to promoters who provided legal services that helped to establish the company. These services had a fair value of $$44,000.$

$31$ Issued $88,000$ common shares in exchange for land, building, and equipment, which have fair market values of $$368,000,$ $$488,000,$ and $$56,000,$ respectively.

Mar. $4$ Purchased equipment at a cost of $$8,240$ cash. This was thought to be a special bargain price. It was felt that at least $$11,600$ would normally have had to be paid to acquire this equipment.

Dec. $31$ During $2023,$ the company incurred a loss of $$104,000.$ The Income Summary account was closed.

$2024$

Jan. $4$ Issued $3,000$ preferred shares at $$94$ per share.

Dec. $31$ The Income Summary account was closed. Profit for $2024$ was $$224,000.$

$2025$

Dec. $4$ The company declared a cash dividend of $$0\mathrm{.}92$ per share on the common shares payable on December $18$ and also declared the required dividend on the preferred shares.

$18$ Paid the dividends declared on December $4.$

$31$ Profit for the year ended December $31,2025,$ was $$226,240.$ The Income Summary account was closed.

Required:

$1.$ Journalize the transactions for the years $2023,2024,$ and $2025.$ The company does not use a cash dividends account.

$2.$ Prepare the statement of changes in equity for the year ended December $31,2025.($Amounts to be deducted should be indicated by a minus sign.$)$

$3.$ Prepare the equity section on the December $31,2025,$ balance sheet.