Question

Problem 12-8B Share transactions, dividends, statement of changes in equity LO2, 3, 4, 5, 6 CHECK FIGURES: 2. Retained earnings, Dec 31, 2020 = $754,500: 3. Equity, Dec 31, 2020 = $4,345,500 Pace Oil & Gas Corp. began operations in 2018. Its balance sheet reported the following components of equity on December 31, 2018. Pace Oil & Gas Corp. Equity Section of the Balance Sheet December 31, 2018 $ 780,000 Contributed capital: Preferred shares. $1.80 non-cumulative, unlimited shares authorized: 25.000 shares issued and outstanding Common shares, unlimited shares authorized: 162.500 shares issued and outstanding....... Total contributed capital......... Retained earnings...... Total equity 1,755,000 $2.535,000 681,000 $3.216,000 The corporation completed these transactions during 2019 and 2020: 2019 Jan. 1 5 Feb. July Dec. 28 1 31 Sold 50,000 common shares at $11.40 per share. The directors declared the first cash dividend totalling $191.250 payable on Feb. 28 to the Feb. 5 shareholders of record Paid the dividends declared on January 5. Issued preferred shares for a total of $486,000. The average issue price was $32.40 per share. Closed the dividend accounts along with the income Summary account, which reflected profit earned during 2019 of $768,000 2020 Sept. 5 Oct Dec. 28 31 The directors declared a $1.80 cash dividend per preferred share and a $0.90 per common share cash dividend payable on October 28 to the October 5 shareholders of record. Paid the dividends declared on September 5. Closed the dividend accounts along with the $240.000 debit balance in the income Summary account. Required 1. Prepare journal entries to record the transactions and closings for 2019 and 2020. 2. Prepare the statement of changes in equity for the year ended December 31, 2020. 3. Prepare the equity section of the company's balance sheet as of December 31, 2020.

Answer 1

Journal entries for 2019 and 2020

2019

Jan 1 Bank/Cash a/c Dr 570000

To common stock a/c 570000

5 Dividend a/c Dr 191250

To dividend payable a/c 191250

Feb 28 Dividend payable a/c   Dr 191250

To cash a/c 191250

July 1 Cash/Bank a/c Dr 486000

To preferred stock a/c 486000

Dec 31 Retained earnings a/c Dr 191250

To dividend a/c 191250

Profit and loss a/c Dr 768000

To retained earnings a/c 768000

2020

Preferred shares = 25000- 2018+ 15000-2019 ($486000/32.=15000)

Common shares = 162500+50000=212500

Dividend to be declared = 212500*.9= $191250

= 40000*1.8=$72000

Total =$263250

Sept 5 Dividend a/c Dr 263250

To dividend payable a/c 263250

Oct 28 Dividend payable a/c Dr 263250

To cash a/c 263250

Dec 31 Retained earnings a/c Dr 263250

To dividend a/c 263250

Retained earnings a/c Dr 240000

To profit and loss a/c 240000

The statement of changes in equity for the year 2020

Particulars		2018	2020	Change in 2020 as compared to 2018
Common stock		1755000	2325000	570000
Preferred stock		780000	1266000	486000
Retained earnings		681000	754500	73500
Total change				$1129500

The statement of equity for 31 st Dec 2020

Particulars	Amount
Preferred shares 40000 issued and outstanding	1266000
Common stock 212500 issued and outstanding	2325000
Total capital contributed	$ 3,591,000
Retained earnings	754500
Total	$4,345,500