P14.7A (LO 2, 4, 5) AP The post-closing trial balance of Jajoo Corporation at December 31, 2024, contains the following shareholders equity accounts:

$5 noncumulative preferred shares (10,000 issued) $1,100,000

Common shares (400,000 issued) 2,000,000

Retained earnings 3,146,000

A review of the accounting records reveals the following:

The January 1, 2024, balance in Preferred Shares was $1,100,000, Common Shares was $1,280,000 (320,000 shares), the balance in Contributed Surplus Reacquisition of Common Shares was $30,000, and the balance in Retained 

Earnings was $2,443,500. One of the companys shareholders needed cash for a personal expenditure. On January 15, the company agreed to reacquire 20,000 shares from this shareholder for $7 per share. On July 1, the company corrected a prior period error that resulted in an increase to the Long-Term Investment account, as well as to the prior years profit of $250,000 before income tax. On October 1, 100,000 common shares were sold for $8 per 

share. The preferred shareholders dividend was declared and paid in 2024 for two quarters. Due to a cash shortage, the last two quarters dividends were not declared or paid. Profit for the year before income tax was $760,000. 

The company has a 25% income tax rate. Instructions

 

Open general ledger accounts for the shareholders equity accounts listed in item (1) above and enter opening balances. Prepare journal entries to record transactions (2) to (5) and post to general ledger accounts. Prepare entries 

to close dividends and the Income Summary account and post. Prepare a statement of changes in shareholders equity for the year. Taking It Further Why is the prior period adjustment for the error in a prior years profit recorded 

in the Retained Earnings account instead of being a correction to profit in the 2024 financial statements? Prepare financial statements.