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The Equitee Corporation was incorporated on January 2, 2019, with two classes of share capital: an unlimited number of common shares and $3 cumulative non-voting preferred shares with an authorized limit of 50,000. During the first year of operations, the following transactions occurred: 1. The company issued 3,400 preferred shares for a total of $85,000 cash, and 10,400 common shares for $23 per share. 2. It issued 3,200 common shares in exchange for a parcel of land with an estimated fair market value of $112,000. 3. The company had sales of $1,068,000 and incurred operating expenses of $943,000 during the year. 4. No dividends were declared during the first year of operations. During the second year of operations, the following transactions occurred: 5. In November, the company's board of directors declared cash dividends sufficient to pay a dividend of $4 on each common share. The dividends were payable on December 14. (Hint: Remember that no dividends can be paid on the common shares until the dividends in arrears and the current dividends on the preferred shares are paid.) 6. In December, the cash dividends from November were paid. 7. In December, the board of directors declared and distributed a 10% stock dividend on the common shares. The estimated market value of the common shares at the time was $24 per share. 8. The company had sales of $1,200,000 and incurred $1,025,000 in operating expenses during the second year. Prepare journal entries to record the above transactions, including closing entries for net income and dividends declared in transactions 3,5,7, and 8. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account and explanation Debit Credit No. Year 1 1. Cash 324200 Preferred Shares 85000 Common Shares 239280 2. Land 112000 Common Shares 112000 3. Sales Revenue 1068000 Income Summary 1068000 (To close revenue account.) Income Summary 943000 Operating Expenses 943000 (To close expense account.) Income Summary 125000 Retained Earnings 125000 (To close net income.) 4. No Entry 0 0 No Entry 0 0 Year 2 Year 2 5. Dividends Declared 10200 Dividends Payable 10200 (To record dividends declared on preferred shares.) Dividends Declared 54450 Dividends Payable 5450 (To record dividends declared on common shares.) Dividends Payable 6. 10200 Cash 10200 7. Dividends Declared 13600 Dividends Payable 13600 (To record stock dividends declared.) Dividends Payable 13600 Cash 13600 (To record stock dividends distributed.) Sales Revenue 8. 1200000 Income Summary 1200000 (To close revenue account.) Income Summary 1025000 Operating Expenses 1025000 (To close expense account.) Income Summary 175000 Retained Earnings 175000 (To close net income.) No Entry 0 0 No Entry 0 0 No Entry 0 0 No Entry 0 0 incidende declared Use a spreadsheet or table format like the one in the first practice problem to track the changes in all of the shareholders' equity accounts over the two-year period. (If an amount reduces the account balance then enter with negative sign, e.g. -15,000 or in parenthesis, e.g. (15,000).) Preferred Shares Common Shares $ Shares issued Shares issued Net income 2019 Pref. dividends Common dividends Stock dividends Net income 2020 Use a spreadsheet or table format like the one in the first practice problem to track the changes in all of the shareholders' equity accounts over the two-year period. (If an amount reduces the account balance then enter with negative sign, e.g. -15,000 or in parenthesis, e.g. (15,000).) Common Shares Retained Earnings Total $ Prepare the shareholders' equity section of the statement of financial position at the end of the second year. Equitee Corporation Shareholders' Equity December 31, 2020 $ $
