Elway decided to incorporate, and Elway Corporation was created on January 1, 2019. Elway Corporation is authorized by its articles of incorporation to issue 100,000 shares of $10 cumulative preferred shares, and an unlimited number of common shares. 

The following transactions relating to shareholders equity occurred during the first two years of the company's operations.

2019

Jan. 2 Issued 200,000 common shares at $12 per share

Jan. 2 Issued 100,000 common shares in exchange for a building valued at $820,000 and merchandise inventory valued at $380,000

Jan. 3 Paid a cash reimbursement to the company's founder for $100,000 of organization costs; these costs are to be amortized over 10 years.

Jan. 3 Issued 12,000 preferred shares for cash at $110 per share.

Dec. 31 The income summary account for 2019 had a $125,000 credit balance before being closed to retained earnings; no dividends were declared on either common or preferred shares

2020

June 4 Issued 100,000 common shares for cash at $15 per share

Dec 10 Declared total cash dividends of $540,000 payable on January 10, 2021

Dec 31 The income summary account for 2020 had a $1,000,000 credit balance before being closed to retained earnings 

1. Prepare the journal entries to record these transactions

2. Prepare statement of retained earnings for the years ended December 31, 2019 and 2020

3. Prepare the shareholders equity section of the balance sheet as at December 31, 2019 and 2020. Include appropriate notes to the financial statements regarding any dividends in arrears.