Question

Equity section of Sol Corporation shows the following on January 1, 2019.

Shares Ordinary – Ordinary, $1 par value 1,000,000 shares authorized,

400,000 shares issued and outstanding                                                        $ 400,000

Shares premium – Ordinary                                                              $ 600,000

Retained earnings                                                                              $ 2,500,000

Total Equity                                                                                      $ 3,500,000

During the year, the company had following transactions occurred:

Mar.    1          Issued 100,000 ordinary shares for $300,000.

Jun.     1          Acquired 10,000 shares of its shares for the treasury at $4 per share

Sep.     1          Sold 2,000 shares of Treasury shares at $5 per share

Dec     1          Declared a cash dividend of $1.5 per share to shareholders of record on Dec 15.

Dec     20        Sold 5,000 shares of Treasury shares at $3  

Dec     30        Paid cash dividend.

Instructions

1. Prepare journal entries to record the above transactions.
2. Company had net income of $450,000 in 2019. Please prepare the equity section of balance sheet as of December 31, 2019.

Answer 1

Hi,

Kindly note that it is assumed that the net income of $4,50,000 is arrived after adjusting dividend expenses for the period.
Solution Date Credit ($) Account Debit ($) Title 3,00,000 1,00 000 2,00,000 Marl Cash Share Capital Shores Premium (1,00,000 shares issued at of a of $2 per share) premium June I 40,000 Treasury Stock 40,000 Cash (10,000 shares acquired at $4 por share) Sen 10,000 Cash Treasury Stock Paid in capital for Treasury Stock (2000 T. Stock sold at 85 per share) 8000 2,000 Dec I 7,38,000 Dividend Expenses 7,38,000 Dividend payable (4,90,000 + 100.000 10,000 + 2000)x1.5 Dec 20 Cash 15,000 Paud in Caprial for Treasury St. 2000 Retained 3000 Earning - Treasury Stock (5000 P. Stock sold at $3 howeren acquired at $uper shore) 20,000 Dec 30 Dividend payable 7,38,000 7,38 000 s-Scammedovito CS CamScanf cash dividend paid) _____

Balance sheet as at December 31 $ 5,00,000 $ 7,00,000 I Shares Ordinory - Ordinary, $1 por value 1,000,000 sharen authorized 5.00,ooo share issued and outstonding Shares premium - Ordinary Retained Corning Sub total less: Treasury stock at cost - (3,000 shores at $4) Total Shareholders Equity $ 29,47,000 $ 42,49,000 $ (12,000) $42,35,000 Nole: - Retained Corning as at Olloilla = $2,500,000 - Add: Net income for the year $ 4,50,000 less: Paid for treasury stock on 12/20= $ 3000 Retained cooning as at 31/12/19 = $29,47,000