Question

On January 1, 2018, Macaron Ltd., a private company, had the following shareholders' equity accounts: Preferred shares, $1 noncumulative, unlimited number authorized, none issued Common shares, unlimited number authorized, 3.07 million issued Retained earnings $3,070,000 4,150,000 The following selected transactions occurred during 2018: Jan. 2 Issued 200,000 preferred shares at $25 per share. Feb. 8 Issued 100,000 common shares in exchange for land. On this date, the current value of the land was $209,000. The common shares have not recently traded, but the last time they traded, they sold for $2.50 per share. Mar. 5 Declared the quarterly cash dividend to preferred shareholders of record on March 20, payable April 2. Apr. 18 Issued 410,000 common shares at $3.00 per share. June 5 Declared the quarterly cash dividend to preferred shareholders of record on June 20, payable July 1. Sept. 5 Declared the quarterly cash dividend to preferred shareholders of record on September 20, payable October 1. Oct. 4 Issued 43,000 preferred shares at $25 per share. Dec. 5 Declared the quarterly cash dividend to preferred shareholders of record on December 20, payable January 1. 14 Declared a cash dividend of $0.50 per share to the common shareholders of record on December 31, payable January 10. 31 Net income for the year was $1.07 million.

Record the above transactions for 2018, including any entries required to close dividends declared and net income to Retained Earnings, open T accounts and post to the shareholders’ equity accounts, prepare a statement of retained earnings for the year.

Answer 1

Par value of common stock = $3.07 Mn divided by 3.07 Mn shares = $ 1 per share

Par value of preferred stock = $1 as given

Given here are the T- accounts for the Equity accounts and Retained Earnings:

Explanation T-Account posting entries Common Share Account Account title Account title Date E Date Debit Credit 1-Jan-18 Cash 3,070,000.00 Fair Market value of stock not determined; but Market value of land determined; 8-Feb-18 Land 100,000.00 hence accounting based on the Market value of land 18-Apr-18 Cash 410,000.00 31-Dec-18 Balance c/f 3,580,000.00 3,580,000.00 3,580,000.00 3,580,000.00 1-Jan-19 Balance b/d Preferred Share Account Account title Date 2-Jan-18 Cash (200,000 shares@ $1 per share) 4-Oct-18 Cash (43,000 sharesS1 per share) Account title Debit Credit Date 200,000.00 43,000.00 31-Dec-18 Balance c/f 243,000.00 243,000.00 243,000.00 243,000.00 1-Jan-19 Balance b/d Paid-in Capital - Common Share Account Account title Debit Date Credit Date Account title Fair Market value of stock not determined; but Market value of land determined; 8-Feb-18 Land 18-Apr-18 Cash 109,000.00 hence accounting based on the Market value of land 820,000.00 410,000 shares at $2 ($3-$1 ) per share 31-Dec-18 Balance c/f 929,000.00 929,000.00 929,000.00 1-Jan-19 Balance b/d 929,000.00 Pain-in Capital - Preferred Share Account Date Account title Date Debit Account title Credit 2-Jan-18 Cash (200,000 shares at $ 24 ($25-$1) per share) 4-Oct-18 Cash (43,000 shares @$24 ($25-$1) per share) 4,800,000.00 1,032,000.00 31-Dec-18 Balance c/f 5,832,000.00 5,832,000.00 5,832,000.00 1-Jan-19 Balance b/d 5,832,000.00 Retained Earnings Account title Date Date Debit Account title Credit 1-Jan-18 Opening Balance b/d 4,150,000.00 20-Mar-18 Dividend Payable 20-Jun-18 Dividend Payable 20-Sep-18 Dividend Payable 20-Dec-18 Dividend Payable 31-Dec-18 Dividend Payable Total outsanding preferred shares as of date 200,000 shares@$1 per share Total outsanding preferred shares as of date 200,000 shares@ $1 per share Total outsanding preferred shares as of date 200,000 shares@$1 per share Total outsanding preferred shares as of date 243,000 shares @ $1 per share 200,000.00 200,000.00 200,000.00 243,000.00 Total outsanding common shares as of date 3,580,000 shares@ $0.50 per share 1,790,000.00 31-Dec-18 Net Income 1,070,000.00 31-Dec-18 Balance c/f 2,587,000.00 5,220,000.00 5,220,000.00 2,587,000.00 1-Jan-19 Balance b/d Dividend Payable Account title Date Date Account title Debit Credit 2-Apr-18 Cash 1-Jul-18 Cash 1-Oct-18 Cash 200,000.00 20-Mar-18 Retained Earnings 200,000.00 20-Jun-18 Retained Earnings 200,000.00 20-Sep-18 Retained Earnings 20-Dec-18 Retained Earnings 31-Dec-18 Retained Earnings 200,000.00 200,000.00 200,000.00 243,000.00 1,790,000.00 31-Dec-18 Balance c/f 2,033,000.00 2,633,000.00 2,633,000.00 1-Jan-19 Balance b/d 2,033,000.00 ($ 243,000 due to pay on Jan 1 & $1790000 due to pay on Jan 10)

Please note that Dividend payable are to be accounted as per "Record" date and not as per "Declared" date.

Here's the Retained Earnings schedule along with Shareholder's Equity Schedule:

Stockholder's Equity Schedule
Description	Amount ($)
Opening Balance
Preferred Shares	-
Common Shares (3.07 mn shares @ $1)	3,070,000.00
Add: Issued Shares at par value of $ 1
Preferred Shares (200,000+43,000 shares @ $1)	243,000.00
Common Shares (100,000 + 410,000 shares @ $1)	510,000.00
Add: Paid-in capital
Preferred Shares (200,000+43,000 shares @ $24 ($25-$1))	5,832,000.00
Common Shares ((109000-100,000) + 410,000 shares @ $2($3-$1))	929,000.00
	10,584,000.00
Less: Treasury Stock	-
Total Stockholder's Equity	10,584,000.00
Retained Earnings Schedule
Description	Amount ($)
Opening Balance (as given)	4,150,000.00	A
Add: Current Year Profit (as given)	1,070,000.00	B
Less: Dividend (Please refer T-Account Retained Earnings)	2,633,000.00	C
Closing Balance	2,587,000.00	A+B-C