Question

Question 1: (27 points)

Northwestern Corporation, a private company, is authorized to issue an unlimited number of common shares and 500,000, $5 cumulative preferred shares. It began operations on January 1, 2023, and the following occurred in 2023:

Jan 1            Issued 5,000 common shares for $50,000 cash.

Jan 2            Issued 1,000 preferred shares for $72.50 per share.

Dec 10          Declared a total of $17,000 in dividends, payable on January 3, 2024 to shareholders of record on December 23, 2023.

The following information is also available with respect to the company operations during the year 2023:

1. Collected $276,000 cash for consulting revenue earned.
2. Paid $167,000 salaries expense; $48,000 rent expense; and $11,000 office expense.
3. Purchase equipment for $150,000 cash.
4. At December 31, the following adjustments were required:
   1. Depreciation on the equipment, $15,000.
   2. Consulting revenue earned but not yet invoiced, $25,000
   3. Accrued salaries expense, $4,500
   4. Income tax rate, 15%. No instalments were paid during the year.
5. Northwestern has elected to prepare its financial statements under ASPE.

Required:

1. Record the share issue and dividend transactions. For the December 10 transaction, be sure to record dividends payable to preferred shareholders separate from dividends payable to common shareholders.
2. Prepare an income statement, statement of retained earnings, and the shareholders’ equity section of the balance sheet

Answer 1

		RECORDING OF TRANSACTIONS
	Date	Account Title	Debit	Credit
	Jan.1, 2023	Cash	$50,000
		Common Shares		$50,000
		(To record issue of 5000 shares at $10 each)
	Jan.2,2023	Cash	$72,500		(72.5*1000)
		Preferred Shares $5 par value		$5,000	(5*1000)
		Additional paid in Capital-Preferred shares		$67,500
		(To record issue of 1000 preferred shares at $72.50 each)
	Dec.10,2023	Dividend	$17,000
		Dividend Payabler		$17,000
		(To record declaration of dividend)
		Cash	$276,000
		Consulting Revenue		$276,000
		Salaries expense	$167,000
		Rent expense	$48,000
		Office expense	$11,000
		Equipment	$150,000
		Cash		$376,000
	a	Depreciation expense	$15,000
		Accumulated depreciation		$15,000
	b	Accounts Receivable	$25,000
		Consulting Revenue		$25,000
	c	Salaries expense	$4,500
		Salaries Payable		$4,500
	d	Tax expense	$8,325
		Taxes Payable		$8,325
		INCOME STATEMENT
		Consulting Revenue		$301,000	(276000+25000)
		Expenses:
		Salaries expense	$171,500		(167000+4500)
		Rent expense	$48,000
		Office expense	$11,000
		Depreciation expense	$15,000
		Total expenses		$245,500
		Income before taxes		$55,500
		Taxes (15%)		$8,325	(55500*15%)
		Net Income		$47,175
		STATEMENT OF RETAINED EARNINGS
		Retained Earnings in the beginning of year	$0
		Net Income	$47,175
		Dividend	($17,000)
		Retained Earnings at the end of the year	$30,175
		SHAREHOLDERS EQUITY SECTION OF BALANCE SHEET
		Preferred Shares $5 par value 500000 authorized and 1000 shares issued and outstanding					$5,000
		Common stock 5000 shares issued and outstanding					$50,000
		Additional Paid in Capital-Preferred Shares					$67,500
		Retained Earnings					$30,175
		Total Shareholders' Equity					$152,675