Plankton Corporation€™s trial balance at December 31, 2015, is presented below:

All transactions and adjustments for 2015 have been recorded and reported in the trial balance except for the items described below.

Jan. 7 Issued 1,000 preferred shares for $25,000. In total, 100,000, $2, non-cumulative, convertible, preferred shares are authorized. Each preferred share is convertible into five common shares.

Sept. 25 Five hundred of the preferred shares issued on January 7 were converted into common shares. 

Nov. 30 Obtained a $50,000 bank loan by issuing a three-year, 6% note payable. Plankton is required to make equal blended payments of $1,521 at the end of each month. The first payment was made on December 31. Note that at December 31, $15,757 of the note payable is due within the next year.

Dec. 1 Declared the annual dividend on the preferred shares on December 1 to shareholders of record on December 23, payable on January 15.

31 The annual interest is due on the bonds payable on January 1, 2016. The par value of the bonds is $130,000 and the bonds were issued when the market interest rate was 7%.

Instructions

(a) Record the transactions.

(b) Prepare an updated trial balance at December 31, 2015, that includes these transactions.

(c) Using the income statement accounts in the trial balance, calculate income before income tax. Assuming Plankton has a 28% income tax rate, prepare the journal entry to adjust income taxes for the year. Note that Plankton has recorded $50,000 of income tax expense for the year to date. Update the trial balance for this additional entry.

(d) Prepare the following financial statements for Plankton:

(1) Income statement,

(2) Statement of changes in shareholders€™ equity, and

(3) Balance sheet.

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PLANKTON CORPORATION Trial Balance December 31, 2015 Debit Credit $ 48,000 Cash Accounts receivable 51,000 Allowance for doubtful accounts 2,500 Merchandise inventory 22,700 Land 190,000 Building Accumulated depreciation-building Equipment Accumulated depreciation-equipment Accounts payable Income tax payable Bonds payable (6%, due January 1, 2019) Common shares, unlimited number of no par value shares authorized, 100,000 issued Retained earnings Accumulated other comprehensive income Sales 215,000 40,000 40,000 15,000 18,775 4,500 126,025 100,000 110,775 5,000 750,000 Cost of goods sold Operating expenses Interest revenue 370,000 180,000 375 Interest expense Income tax expense 6,250 50,000 Total $1,172,950 $1,172,950