Question 1

Burlington Clothes was incorporated on October 1, 2018. The articles of incorporation indicated the company was authorized to issue 600,000 shares of no par value common shares and 200,000, $2 preferred shares that are cumulative and participating in distributions in excess of 5% of a dividend rate on the common shares. The companys year-end is September 30. The following information relates to the companys shareholders equity account.

1. 80,000 common shares issued for cash on October 1, 2018, at $60 per share.
2. 20,000 $2 preferred shares were issued on October 1, 2018 at $80 per share.
3. 10,000 common shares exchanged on Dec 15, 2018, for land in the downtown core. The land had originally cost the seller $300,000 and had an estimated fair value of $550,000 on Dec 15, 2018 when Burlingtons share were selling for $58.
4. 10,000 common shares issued on June 1, 2019; the shares had been subscribed for $55 per share on October 31, 2018.
5. October 1, 2020: subscriptions were received for 8,000 common shares at $60 per share. The first installment of $200,000 was received on this date and the final installment was paid on September 30, 2021.
6. November 1, 2020: the company purchased 4,000 of its common shares at $58 per share and restored these shares to the status of authorized but unissued.
7. December 1, 2020: the company declared a 5% stock dividend for shareholders of record on January 1, 2021. The company was short on cash and therefore could not pay a cash dividend. The companys shares were selling at $57 per share on December 1, 2020.
8. March 15, 2021: the company sold 10000 common shares for $450,000.
9. Dividends:

Burlington did not declare any dividends until September 30, 2020. At that date total dividends of $500,000 were declared.

10. The company incurred the following profits (loss) since incorporation:

2019 (25,000)

2020 675,000

2021 400,000

Required:

Determine the amount of dividends received by pr

1. eferred and common shareholders from the September 30, 2020 declaration.
2. Prepare the journal entries for 2020-21 fiscal year.
3. Prepare the statement of changes in equity and the shareholders equity section of the balance sheet for September 30, 2021.

Question 2

Mighty Contractors has been experiencing financial difficulties since start up. The following are the ledger balances on December 31, 2020:

Common shares (40,000 shares authorized and outstanding) $560,000

Retained Earnings (Deficit) (320,000)

On January 2, 2021, the companys shareholders agreed to a financial reorganization whereby there was a transfer ownership of the shares to the creditors in full payment of the $450,000 notes payable. At the time the building was on the books at $275,000 and it was determined that the market value was $380,000. Equipment was on the books at $85,000 but the appraised value was $65,000.

Required:

Prepare the journal entries for the financial reorganization of Mighty Contractors.