Cattrall Corporation is authorized to issue an unlimited number of $5 cumulative preferred shares and an unlimited number of common shares. On February 1, 2020, the general ledger contained the following shareholders’ equity accounts:

Preferred shares (10,000 shares issued) ........... $ 475,000
Common shares (70,000 shares issued) ............ 1,050,000
Retained earnings .................................................... 700,000

The following equity transactions occurred during the year ended January 31, 2021:

Feb. 28 Issued 5,000 preferred shares for $275,000.

Apr. 12 Issued 200,000 common shares for $3.2 million.

May 25 Issued 5,000 common shares in exchange for land. At the time of the exchange, the land was valued at $75,000.

Jan. 1 Paid dividend of $2.50 per share to preferred shareholders.

31 A loss of $50,000 was incurred for the year.

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 part (a).

c. Prepare the shareholders’ equity section of the balance sheet at January 31, 2021, including any required disclosures. Assume Cattrall is reporting under ASPE and there were no preferred dividend arrears at January 31, 2020.

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?