Lighthouse Company began operations on January 1. Authorized were 25,000 shares of $1 par value common stock and 5,000 shares of 10%, $100 par value convertible preferred stock. The following transactions involving stockholders equity occurred during the first year of operations:

Jan. 1 Issued 1,000 shares of common stock to the corporation promoters in exchange for property valued at $23,000 and services valued at $5,000. The property had cost the promoters $18,000 three years before and was carried on the promoters books at $15,000.

Feb. 23 Issued 1,500 shares of convertible preferred stock with a par value of $100 per share. Each share can be converted to five shares of common stock. The stock was issued at a price of $120 per share, and the company paid $6,000 to an agent for selling the shares.

Mar. 10 Sold 2,500 shares of the common stock for $26 per share. Issue costs were $2,000.

Apr. 10 Sold 5,000 shares of common stock under stock subscriptions at $37 per share. No shares are issued until a subscription contract is paid in full. No cash was received.

July 14 Exchanged 1,200 shares of common stock and 190 shares of preferred stock for a building with a fair market value of $72,000. The building was originally purchased for $65,000 by the investors and has a book value of $48,000. In addition, 900 shares of common stock were sold for $27,000 in cash.

Aug. 3 Received payments in full for half of the stock subscriptions and payments on account on the rest of the subscriptions. Total cash received was $138,000. Shares of stock were issued for the subscriptions paid in full.

Dec. 1 Declared a cash dividend of $10 per share on preferred stock, payable on December 31 to stockholders of record on December 15, and a $1.50-per-share cash dividend on common stock, payable on January 5 of the following year to stockholders of record on December 15. (No dividends are paid on unissued subscribed stock.)

31 Paid the preferred stock dividend.

31 Received notice from holders of stock subscriptions for 1,000 shares that they would not pay further on the subscriptions because the price of the stock had fallen to $19 per share. The amount still due on those contracts was $35,000. Amounts previously paid on the contracts are forfeited according to the agreements.

Net income for the first year of operations was $80,000. Assume that revenues and expenses were closed to a temporary account, Income Summary. Use this account to complete the closing process.

Instructions:

1. Prepare journal entries to record the preceding transactions on Lighthouse books.

2. Prepare the Stockholders Equity section of the balance sheet at December 31 for Lighthouse.