Demonstration Problems for Chapter $11$

Demonstration Problem $11-1-$ Forms of Business Organization

Assume a business was started on January $1,$ Year $1$ when it acquired $$60,000$ cash from its owner$($s$).$ During Year $1,$ the company generated $$29,000$ of cash service revenue, incurred $$19,000$ of cash expenses, and distributed $$4,000$ cash to the owner$($s$).$

Required

Prepare an income statement, a statement of changes in equity, and a balance sheet for each of the three alternative scenarios described below. The statement of changes in equity is called a capital statement for proprietorships and partnerships. It is called a statement of changes in stockholders' equity for corporations.

Sally Russell formed the business as a sole proprietorship.

Carl Link and Bill Morgan established the business as a partnership. Link contributed $60\%$ of the capital and Morgan contributed the remaining $40\%.$ The partners agreed to share profits and withdrawals in proportion to their capital investments.

The business was established as a corporation. It issued $1,000$ shares of no$-$par common stock for $$60$ per share.

Demonstration Problem $11-2-$ Stockholders' Equity Transactions

Reynolds, Inc. was incorporated on January $1,$ Year $1.$ The following events apply to the company's first year of operation.

Issued $2,000$ shares of $$10$ par value common stock at a market price of $$25$ per share.

Earned $$35,000$ cash revenue.

Incurred $$25,000$ of cash expenses.

Declared a $$3,000$ cash dividend.

Paid the cash dividend declared in Event No$.4.$

Distributed a $5\%$ stock dividend when the market price of the stock was $$28$ per share.

Distributed a two$-$for$-$one stock split.

Required

Record the events using the horizontal financial statements model.