Stellar Corp. had the following shareholders’ equity on January 1, 2012:
Common shares, 300,000 shares authorized, 100,000 shares
issued and outstanding .................. $ 270,000
Contributed surplus .................... 310,000
Retained earnings .................... 2,300,000
Total shareholders’ equity ................. $2,880,000
The following transactions occurred, in the order given, during 2012.
1. Subscriptions were sold for 12,000 common shares at $26 per share. The first payment was for $10 per share.
2. The second payment for the sale in item 1 above was for $16 per share. All payments were received on the second payment except for 2,000 shares.
3. In accordance with the subscription contract, which requires that defaulting subscribers have all their payments refunded, a refund cheque was sent to the defaulting subscribers. At this point, common shares were issued to subscribers who had fully paid on the contract.
4. Repurchased 22,000 common shares at $29 per share. They were then retired.
5. Sold 5,000 preferred shares and 3,000 common shares together for $300,000. The common shares had a market value of $31 per share.
Instructions
(a). Prepare the journal entries to record the transactions for the company for 2012.
(b). Assume that the subscription contract states that defaulting subscribers forfeit their first payment. Prepare the journal entries for items 2 to 4 above.