Largent Corporation is authorized to issue 200,000, $4 cumulative preferred shares and an unlimited number of common

Question:

Largent Corporation is authorized to issue 200,000, $4 cumulative preferred shares and an unlimited number of common shares. On January 1, 2014, the general ledger contained the following shareholders' equity accounts:

Preferred shares (8,000 shares issued).....................................$ 440,000

Common shares (70,000 shares issued)....................................1,050,000

Retained earnings...............................................................800,000

During 2014, the following transactions occurred:

Jan. 1 Issued 10,000 preferred shares for $600,000.

Apr. 14 Issued 40,000 common shares for $560,000.

June 30 Paid a semi-annual dividend to the preferred shareholders.

Aug. 22 Issued 10,000 common shares in exchange for a building. At the time of the exchange, the building's fair value was $150,000.

Dec. 31 Profit for the year was $582,000.

Instructions

(a) Journalize the transactions and the entries to close dividends and the Income Summary account.

(b) Open general ledger accounts for the shareholders' equity accounts and post entries from (a).

(c) Prepare the shareholders' equity section of the balance sheet at December 31, 2014, including any required disclosures. Assume Largent is reporting under ASPE.

Taking It Further

What are the difficulties in determining how many shares to issue in exchange for noncash assets as well as how to value the transaction?

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