Question

P11-3

Expenses, including income taxes $330.000 240,000 Required: 1. Prepare the journal entries to record each of these tra Har entries to record each of these transactions and to close the accounts. 2. Write a brief memo explaining how you determined the cost of the land and journal entry. my o. Prepare the shareholders' equity section of the statement of financial position to Corporation as at December 31, 2018. nined the cost of the land and the building in the first L011-3,11-4, 11-6, 11-8 P11-3 Preparing the Shareholders' Equity Section after Selected Transactions Eddie Edwards Limited, a public company, was formed on January 2, 2017, with the one authorized capital structure: Preferred shares: No par value, $1.00 per share quarterly cumulative dividend, callable at 103, 100,000 shares Common shares: Unlimited number of shares The following selected transactions occurred during the first six months of operations: January 2 Sold and issued 100,000 common shares in exchange for land and building with a combined appraised value of $2,200,000. Sixty percent of the acquisition cost is attributable to the building. January 3 Sold and issued 50,000 preferred shares for $1,250,000 cash. April 1 Declared the quarterly cash dividend on the preferred shares, payable on April 25. April 10 Declared and distributed a 5 percent common stock dividend on all outstanding common shares as of March 31. The market price of the common shares on March 31 was $24 per share. April 25 Paid the preferred dividend that was declared on April 1. Required: 1. Prepare journal entries to record the above transactions. 2. Prepare the shareholders' equity section of the statement of financial position for Eddie Edwards June 30, 2017. Assume that the company recorded net earnings of $500,000 for its first six months.

Answer 1

Requirement 1: Prepare the following journal entries

Date	Account Title and Explanation	Debit	Credit
Jan. 2	Land   ($2,200,000 × 40%)	$880,000
	Building ($2,200,000 × 60%)	$1,320,000
	Common Shares		$2,200,000
	To record common shares issued in exchange for land and building
Jan. 3	Cash	$1,250,000
	Preferred Shares		$1,250,000
	To record preferred shares issued for cash
Apr. 1	Retained Earnings    (50,000 shares × $1)	$50,000
	Dividends Payable		$50,000
	To record dividends on preferred shares declared
Apr. 10	Retained Earnings    (2,200,000 shares × 5%)	$110,000
	Cash		$110,000
	To record cash dividends on common shares declared and paid
Apr. 25	Dividends Payable	$50,000
	Cash		$50,000
	To record dividends on common shares declared

Requirement 2: Prepare the stockholders section of the statement of financial position as follows

Stockholders' Equity
Contributed Capital
Preferred shares: No par value, $1.00 per share
quarterly cumulative dividend, callable at 103,
100,000 authorized, 50,000 outstanding	$1,250,000
Common shares: Unlimited number of shares
100,000 shares outstanding	$2,200,000
Total Contributed Capital	$3,450,000
Retained earnings ($500,000 − $110,000 − $50,000)	$340,000
Total Stockholders' Equity	$3,790,000