The shareholders’ equity section of Gaines Industries' balance sheet appeared as follows at December 31, 2015:

Gaines Industries'

Balance Sheet (Shareholders' Equity)

December 31, 2015

1	Contributed Capital:
2	Preferred stock, 8%, $100 par (5,000 shares authorized, 3,000 shares issued)	$300,000.00
3	Common stock, $10 par (25,000 shares authorized, 20,000 shares issued of which 500 shares are being held as treasury stock)	200,000.00
4	Additional paid-in capital on preferred stock	120,000.00
5	Additional paid-in capital on common stock	280,000.00
6	Common stock option warrants	32,000.00
7	Total contributed capital	$932,000.00
8	Retained earnings	260,000.00
9	Total contributed capital and retained earnings	$1,192,000.00
10	Less: Treasury stock (500 common shares at $31)	(15,500.00)
11	Total Shareholders’ Equity	$1,176,500.00

During 2016, the following chronological transactions were recorded:

1.	Gaines issued 1,000 shares of common stock for $40 per share.
2.	Gaines has a share option plan for key executives. In accordance with the plan, the shares under option and the option price per share for each executive are known on the grant date. During 2016, no new options were granted, and compensation expense of $3,000 was recorded in regard to the existing options.
3.	Share options to 500 common shares were exercised in 2016 at an option price of $30 per share. The share option value originally recorded in the Common Stock Option Warrants account in regard to these shares amounted to $3 per share.
4.	Gaines reissued 200 shares of its treasury stock for $41 per share.
5.	Gaines accepted land in an industrial park for a factory building site from the Columbus Development Association (a government agency). The fair value of the land is estimated by an independent appraiser to be $50,000.
6.	The law firm of Crook, Rezich, and Romero agreed to accept 100 shares of preferred stock in lieu of legal fees. At the time, the preferred stock was selling for $142 per share.
7.	Net income for 2016 of $182,000 was transferred from Income Summary to Retained Earnings. Dividends on preferred and common were $24,800 and $43,000, respectively (debit Retained Earnings and credit Cash).

Required:

1.

Prepare journal entries to record the preceding 2016 transactions for Gaines.

2.

Prepare the statement of shareholders’ equity for 2016. This statement will require 10 numerical columns.

3.

Prepare the shareholders’ equity section of the December 31, 2016, balance sheet. Include appropriate notes to the financial statements.

4.

Compute the return on shareholders’ equity for 2016.

GAINES INDUSTRIES

Statement of Shareholders’ Equity

For Year Ended December 31, 2016

1	Explanation	Preferred Stock Shares Issued	Preferred Stock Par Value	Common Stock Shares Issued	Common Stock Par Value	Additional Paid-in Capital on Preferred Stock	Additional Paid-in Capital on Common Stock	Common Stock Option Warrants	Retained Earnings	Donated Capital	Treasury Stock
2	Balances, January 1, 2016
3	Issued common stock
4	Compensation expense for share options
5	Share options exercised
6	Reissued treasury stock
7	Accepted donated land for factory site
8	Issued preferred stock
9	Net income
10	Dividends
11	Balances, December 31, 2016