Question

Hammond Manufacturing Inc. was legally incorporated on January 2, 2020. Its articles of incorporation granted it the right to issue an unlimited number of common shares and 100,000 shares of $14.9 non-cumulative preferred shares. The following transactions are among those that occurred during the first three years of operations: 2020 Jan. 12 Issued 40,250 common shares at $5.3 each. 20 Issued 8,000 common shares to promoters who provided legal services that helped to establish the company. These services had a fair value of $41,000. 31 Issued 85,000 common shares in exchange for land, building, and equipment, which have fair market values of $365,000, $485,000, and $53,000, respectively. Mar. 4 Purchased equipment at a cost of $8,210 cash. Thi of $8,210 cash. This was thought to be a special bargain price. It was felt that at least $11,300 would normally have had to be paid to acquire this equipment. Dec. 31 During 2020, the company incurred a loss of $101,000. The Income Summary account was closed. 2021 Jan. 4 Issued 4,000 preferred shares at $91 per share. Dec. 31 The Income Summary account was closed. Profit for 2021 was $221,000. 2022 Dec. 4 The company declared a cash dividend of $0.62 per share on the common shares payable on December 18 and also declared the required dividend on the preferred shares. 18 Paid the dividends declared on December 4. 31 Profit for the year ended December 31, 2022, was $213,325. The Income Summary account was closed. Required: 1. Journalize the transactions for the years 2020, 2021, and 2022. The company does not use a cash dividends account.

Answer 1

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Part 1
Year 2020
Jan 12 2020	Cash	$                   213,325
	Common Shares		$                  213,325
	To record issuance of shares.
	Organization Expenses	$                     41,000
	Common Shares		$                    41,000
	To record issuance of shares in exchange for organization efforts.
	Land	$                   365,000
	Building	$                   485,000
	Equipment	$                     53,000
	Common Shares		$                  903,000
	To record exchange of shares for PPE assets.
Mar 4 2020	Equipment	$                       8,210
	Cash		$                       8,210
	To record purchase of equipment.
Dec 31 2020	Retained Earnings	$                   101,000
	Income Summary		$                  101,000
	To record closing of income summary to retained earnings.
Year 2021
Jan 4 2021	Cash	$                   364,000
	Preferred Shares		$                  364,000
	To record issuance of preferred shares.
Dec 31 2021	Income Summary	$                   221,000
	Retained Earnings		$                  221,000
	To record closing of income summary to retained earnings.
Year 2022
Dec 4 2022	Cash Dividends	$                   142,215
	Preferred Dividends Payable (4,000*$14.90)		$                    59,600
	Common Dividends Payable (40,250+8,000+85,000)*$0.62		$                    82,615
	To record declaration of dividends
Dec 18 2022	Preferred Dividends Payable	$                     59,600
	Common Dividends Payable	$                     82,615
	Cash		$                  142,215
	To record the payment of dividends.
Dec 31 2022	Retained Earnings	$                   142,215
	Cash Dividends		$                  142,215
	To close the cash dividends account
Dec 31 2022	Income Summary	$                   213,325
	Retained Earnings		$                  213,325
	To close the income summary account.
Part 2
		Preferred Shares	Common Shares	Retained Earnings	Total Equity
	Balance, January 1	$                   364,000	$              1,157,325	$                      120,000	$     1,641,325
	Issuance of shares	$                              -	$                              -		$                    -
	Net income (loss)			$                      213,325	$         213,325
	Dividends			$                    -142,215	$       -142,215
	Balance, December 31	$                   364,000	$              1,157,325	$                      191,110	$     1,712,435
Part 3
	Contributed Capital:
	Preferred shares, $14.90 noncumulative, 100,000 shares
	authorized, 4,000 shares issued & outstanding	$                   364,000
	Common shares, unlimited shares
	authorized, 133,250 shares issued and outstanding	$               1,157,325
	Total contributed capital	$               1,521,325
	Retained earnings	$                   191,110
	Total equity	$               1,712,435
	Analysis component:
		Year 2020	Year 2021	Year 2022
	Net Assets (Common Shared+Preferred Share+Net Income-Dividend)	$               1,056,325	$              1,641,325	$                  1,712,435
	Trend	Favorable	Favorable	Favorable
	(Favorable: Since net asset increasing)