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 $13.8 non-cumulative preferred shares. The following transactions are among those that occurred during the first three years of operations:
 

2020
Jan.	12		Issued 40,200 common shares at $4.2 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 $30,000.
	31		Issued 74,000 common shares in exchange for land, building, and equipment, which have fair market values of $354,000, $474,000, and $42,000, respectively.
Mar.	4		Purchased equipment at a cost of $8,100 cash. This was thought to be a special bargain price. It was felt that at least $10,200 would normally have had to be paid to acquire this equipment.
Dec.	31		During 2020, the company incurred a loss of $90,000. The Income Summary account was closed.
2021
Jan.	4		Issued 4,000 preferred shares at $66 per share.
Dec.	31		The Income Summary account was closed. Profit for 2021 was $210,000.
2022
Dec.	4		The company declared a cash dividend of $0.82 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 $168,840. 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

Answers :

1)Journal Entries :

Date	General Journal	Debit	Crtedit
12-Jan ,2020	Cash	$173075
	To Common shares(40250*$4.3)		$173075
20-Jan,2020	Organization Expenses	$31000
	To Common shares		$31000
31-Jan,2020	Land	$355000
	Building	$475000
	Equipment	$43000
	To Common shares		$873000
4-March,2020	Equipment	$8110
	To Cash		$8110
31-Dec,2020	Retained Earnings	$91000
	To Income summary		$91000
4-Jan,2021	Cash	$201000
	To Preferred shares(3000*$67)		$201000
31-Dec,2021	Income summary	$211000
	To Retained Earnings		$211000
4-Dec,2022	Retained Earnings	$129720
	To Preferred dividends payable(3000*$13.9)		$41700
	To common dividends payable((40250+7000+75000)*$0.72)		$88020
18-Dec ,2022	Preferred dividends payable	$41700
	Common dividends payable	$88020
	To Cash		$129720
31-Dec,2022	Income summary	$173075
	To Retained Earnings		$173075

2)Preparation of statement of changes in Equity for the year ended December 31,2022:

HAMMOND MANUFACTURING INC.
Statement of changes in Equity
For the year ended December 31,2022
	Preferred Shares	Common shares	Retained Earnings	Total Equity
Balance ,jan 1	$201000	$1,077,075 (173075+31000+873000)	$120000 (211000-91000)	$1398075
			$173075	$173075
			($129720)	($129720)
Balance,Dec-31	$201000	$1,077,075	$163355	$1,441,430