Question

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

a)

Date	Account title and explanation	Debit	Credit
Jan 1,2023	Cash	$50,000
	Common stock		$50,000
	[Issuance of common stock]
Jan 2,2023	Cash [1,000 x $72.50]	$72,500
	Preferred stock		$72,500
	[Issuance of preferred stock]
Dec 10,2023	Retained earnings	$17,000
	Dividends payable-preferred [1,000 x $5]		$5,000
	Dividends payable-common		$12,000
	[Declaration of dividends]

b)

Income statement:

Northwestern Corporation
Income statement
For the year ended Dec 31,2023
Revenues:
Service revenue (276,000+15,000)		$301,000
Expenses:
Salaries expense (167,000+4,500)	$171,500
Rent expense	$48,000
Office expense	$11,000
Depreciation expense	$15,000	$245,500
Income before income tax		$55,500
(Less): Income tax expense (55,500 x 15%)		($8,325)
Net income		$47,175

Statement of retained earnings:

Northwestern Corporation
Statement of retained earnings
For the year ended Dec 31,2023
Retained earnings, Beginning	$0
Net income	$47,175
Balance	$47,175
(Less) Dividends	($17,000)
Retained earnings, as on Dec 31,2023	$30,175

Statement of stockholder's equity:

Northwestern Corporation
Statement of stockholder's equity
For the year ended Dec 31,2023
Stockholder's equity:
Common stock	$50,000
Preferred stock	$72,500
Paid in capital	$122,500
Retained earnings	$30,175
Total stockholder's equity	$152,675