he owners are desirous of comparing several financial transactions and possible outcomes to assist in guiding their decision-making process. They assume that the company will be formed on January 1, 2020 and that Mulatto Company’s charter will authorize 1,000,000 shares of common stock and 400,000, $100 par value, 5% cumulative preferred stock.

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter16: Retained Earnings And Earnings Per Share
Section: Chapter Questions
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The owners are desirous of comparing several financial transactions and possible outcomes to assist in guiding their decision-making process. They assume that the company will be formed on January 1, 2020 and that Mulatto Company’s charter will authorize 1,000,000 shares of common stock and 400,000, $100 par value, 5% cumulative preferred stock.

 

  • Issued 100,000 shares of common stock. Stock has par value of 0.60 per share and was issued at $30 per share.

 

  • Issued 14,000 shares of preferred stock at par value as payment in exchange for legal services.

 

  • Exchanged 260,000 shares of common stock for land with an appraised value of $650,000 and a building with an appraised value of $500,000.

 

  • Earned Net income $900,000.

 

  • Paid dividends to preferred shareholders as well as $2 per share to common stockholders.

Using the info above and as a guide:

1. Prepare the journal entries with narrations to record the following:

  • The issuances of stock.
  • Close out net income to retained earnings.
  • Dividend paid.
  • Close out dividend to retained earnings.

 

2. Prepare Mulatto Company’s Stockholders equity section of the balance sheet at December 31, 2020.

The following information must be clearly stated/shown:

  • information on par values,
  • the number of shares authorized and issued where necessary.
  • the sub total for the total paid in capital.
  • Retained earnings.
  • total stockholders’ equity.
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