Hernandez Company is authorized by its charter to issue 800,000 shares of \(\$ 1\) par value common stock and 40,000 shares of \(12 \%\), cumulative and nonparticipating, \(\$ 100\) par value preferred stock. The company completed the following transactions:

1989 Apr. 5 Issued 125,000 shares of common stock at par for cash.

28 Gave the corporation's promoters 80,000 shares of common stock for their services in getting the corporation organized. The directors valued the services at \(\$ 175,000\).

May 7 Exchanged 200,000 shares of common stock for the following assets at fair market values: land, \(\$ 85,000\); buildings, \(\$ 200,000\); and machinery, \(\$ 325,000\).

Dec. 31 Closed the Income Summary account. A \(\$ 90,000\) loss was incurred.

1990 Jan. 15 Issued 4,000 shares of preferred stock at par.

Mar. 20 Accepted subscriptions to 40,000 shares of common stock at \(\$ 1.90\) per share. Down payments of \(25 \%\) accompanied the subscription contracts.

Dec. 31 Closed the Income Summary account. A \(\$ 250,000\) net income was earned 1991 Jan. 9 The board of directors declared a \(12 \%\) dividend to preferred shares and \(\$ 0.20\) per share to outstanding common shares, payable on January 22 , to the January 15 stockholders of record.

22 Paid the previously declared dividends.

Mar. 13 Hernandez Company's convertible bonds payable with par value of \(\$ 40,000\) (plus unamortized premium of \(\$ 2,500\) ) were submitted for conversion into common shares on this date. The bondholders accepted 25,000 shares of Hernandez' common stock in conversion of these bonds.

Dec. 31 Closed the Dividends Declared and Income Summary accounts. A \(\$ 250,000\) net income was earned.
\section*{Required}
1. Prepare general journal entries to record the transactions.
2. Prepare the stockholders' equity section of a balance sheet as of the close of business on December 31, 1991 .