Nygren Corporation, a private company, is authorized to issue an unlimited number of common shares and 500,000, $5 cumulative preferred shares. It began operations on January 1, 2014, and the following transactions occurred in 2014:
Jan. 1 Issued 6,000 common shares for $60,000 cash.
2 Issued 1,000 preferred shares for $62.50 cash per share.
Dec. 10 Declared a total of $17,000 in dividends, payable on January 3, to shareholders of record on December 23.
The following information is also available with respect to the company's operations during the year:
1. Collected $268,000 cash for consulting revenue earned.
2. Paid $164,000 salaries expense; $42,000 rent expense; and $12,000 office expense.
3. Purchased equipment for $130,000 cash.
4. At December 31, determined the following adjustments were required:
• Depreciation on the equipment, $13,000
• Consulting revenue earned but not yet collected in cash, $22,000
• Accrued salaries expense, $4,200
• Income tax rate, 15%. No instalments were made during the year.
Nygren elected to report under ASPE.
Instructions
(a) Record the share issue and dividend transactions.
(b) Record summary journal entries for transactions (1) to (3) and adjusting entries for items in (4).
(c) Open an account for Cash and post transactions.
(d) Prepare an income statement, statement of retained earnings, and balance sheet.
Taking It Further
Why common shareholders are sometimes referred to as "residual owners"?