Walnut Company is a new company specializing in wholesale and distribution of nuts and other food products.

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Question:

Walnut Company is a new company specializing in wholesale and distribution of nuts and other food products. They buy products from farms and sell them to restaurants and supermarkets.

On January 1, 2022, Walnut Company was set up with a total of 1,000,000 shares of common stock authorized. In 2022, its first year of business, the Company carried out the following transactions:

On January 1, 2022, Walnut Company issued 250,000 shares of $1 par value common stock to Mr. James Walnut and his fellow investors for $8 per share.

On January 1, 2022, Walnut Company issued 10,000 shares of $100 par value, 5%, cumulative preferred shares for a total price of $1,200,000.

On January 1, 2022, Walnut Company acquired a building by issuing a $3,000,000, 2-year, 6% note to the seller that requires Walnut. Interest was to be paid annually on January 1, 2023 and January 1, 2024. Principal was to be paid back on January 1, 2024. The building was estimated to have a useful life of 25 years with a total salvage value of $200,000.

On February 1, 2022, Walnut Company paid $200,000 cash to acquire five delivery trucks. The trucks were estimated to have a useful life of 5 years and a total salvage value of $20,000. Walnut decided to use the straight-line method of depreciation for the trucks. During 2022, Walnut Company made the following purchases of walnuts. All purchases were made on credit, with payment terms 2/10, n/30. In each case Walnut paid the supplier on the last day of the discount period.

March 1: 300,000 pounds @ $2 per pound; May 1: 550,000 pounds @ $2.20 per pound; During 2022, Walnut Company made the following sales of walnuts. All sales were made on credit, with payment terms 2/10, n/30.

In each case Walnut was paid by the customer on the last day during the discount period. Walnut Company used FIFO to value its inventory with a perpetual inventory system.

August 31: 400,000 pounds @ $4 per pound; November 30: 200,000 pounds @ $4 per pound.

On October 1, Walnut Company bought back 30,000 shares of common stock from one stockholder for $12 a share and held the shares as treasury stock. On November 1, Walnut Company sold two delivery trucks for $70,000 cash. On December 1, Walnut Company declared cash dividends of $5 ($100 x 5%) per $100 par value preferred stock for all the 10,000 shares of preferred shares outstanding. On the same day, Walnut Company declared cash dividends of $0.5 per share to its common stockholders on record on December 15. During 2022, Walnut Company’s selling, general, and administrative (operating) expenses totaled $450,000. These expenses included supplies, utilities, and employee salaries and wages and other expenses that are not separately listed, and were all paid in cash as incurred.

On December 31, Walnut Company paid all cash dividends declared on December 1. On December 31, 2022, Walnut Company recorded necessary adjusting journal entries in relation to the transactions above. As a new company, Walnut Company was exempted from paying corporate income taxes for the first two years. These data and facts apply to this question and the next two questions.

Required: Prepare necessary journal entries for all transactions/events listed above. You do not have to record closing journal entries. Label your entries clearly with dates and accounts to be debited and credited. Show your work. If no entry is required, state so.