Baron Corporation was authorized by its charter to issue 80,000 shares of 12%, $100 par cumulative preferred stock and 200,000 shares of $1 par value common stock. In its first year of operations, Baron had the following transactions.

(1) Sold 50,000 shares of common stock for $300,000 on January 1.

(2) Sold 3,000 shares of preferred stock for $360,000 on January 1.

(3) Earned $185,000 for the sale of their merchandise of which $135,000 was on credit.

(4) Had expenses of $122,500 in connection with selling the merchandise. All expenses were paid in cash.

(5) Purchased 5,000 shares of outstanding common stock for $8.00 per share for the treasury.

(6) Declared a dividend of $.20 per share of common stock and for the amount due the preferred stock.

(7) Paid the required dividends.

Required:

(a). Prepare the necessary journal entries.

(b). Prepare the stockholders' equity section of the balance sheet.