Instructions

Specific Motor Inc., makes and sells commercial vehicles. By December 31, 2019, the company reported retained earnings of $306,000. Since the company needs $2,000,000 to expand its business, its Board of Directors authorized the issuance of 2,000,000 share of $1 par value common stock in December 2019. The following transactions occurred in 2020.

1. On January 24, Specific Motor issued 500,000 shares of its $1 par-value common stock at a market value of $3 cash per share.

2. On March 15, Specific Motor found that it understated its revenue of 2016 from a major customer, Center Inc. for a net (after tax) of $41,000.

3. On June 16, Specific Motor purchased 90,000 shares of treasury stock at $6 per share.

4. On August 7, the board of Specific Motor declared cash dividends of $0.20 for each share of common stock outstanding on that day. The date of record was set to be September 30 and the date of payment (distribution) was set to be November

5. On September 30, Specific Motor finished recording the information of shareholders.

6. On October 18, Specific Motor sold 70,000 shares of treasury shares at $10 cash per share.

7. On November 4, Specific Motor paid the cash dividends declared on August

8. During 2020, Specific Motor sold out the entire inventory, which cost $2,000,000 for a total of $3,400,000. Operating expenses totaled $980,000 and income tax expense was $167,000. These transactions have been settled in cash.

Requirements:

1. ANALYZE the effects of the above transactions on the specific accounts in the Accounting Equation or RECORD the above transactions (Choose either analysis or recording).
2. Show the effects of these above transactions on Specific Motors 2020 Income Statement and Statement of Retained Earnings as well as on its Balance Sheet at 12/31/2020? (Hint: the key is to understand how the financial statements will be affected by what accounts in the above requirement 1. Thus, there is no need to prepare the complete financial statements.)
3. Please provide a brief explanation on how stock market affects the accounting and reporting of Specific Motors stock in 2020.