The post-closing trial balance of Michaud Corporation at December 31, 2014, contains the following shareholders' equity accounts:
Question:
The post-closing trial balance of Michaud Corporation at December 31, 2014, contains the following shareholders' equity accounts:
$4 cumulative preferred shares (15,000 shares issued)........................$ 850,000
Common shares (250,000 shares issued).........................................3,200,000
Contributed surplus-reacquisition of common shares............................20,000
Retained earnings...................................................................1,418,000
A review of the accounting records reveals the following:
1. The January 1 opening balance in Common Shares was $3,210,000 (255,000 shares) and the balance in Retained Earnings was $980,000.
2. On March 1, 20,000 common shares were sold for $15.50 per share.
3. One of the company's shareholders needed cash for personal reasons. On July 1, the company agreed to reacquire 25,000 shares from this shareholder for $12 per share.
4. On September 1, the company discovered a $60,000 error that overstated sales in 2013. All sales were made on account. The net-of-tax effect was properly debited to Retained Earnings. The company has a 30% income tax rate.
5. The preferred shareholders' dividend was declared and paid in 2014 for three quarters. Due to a cash shortage, the last quarter's dividend was not paid.
6. Profit for the year before income tax was $750,000.
Instructions
(a) Open general ledger accounts for the shareholders' equity accounts listed in (1) above and enter opening balances.
(b) Prepare journal entries to record transactions (2) to (5) and post to general ledger accounts.
(c) Prepare entries to close dividends and the Income Summary accounts and post.
(d) Prepare a statement of changes in shareholders' equity for the year.
(e) Compare the balances in the general ledger accounts with the closing balances on the statement of changes in shareholders' equity.
Taking It Further
Why is the prior period adjustment for the error in 2013 sales recorded in the Retained Earnings account instead of being a correction to sales in the 2014 financial statements?
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
a b and c Preferred Shares Date Explanation Ref Debit Credit Balance Jan 1 Balance 15000 850000 Common Shares Date Explanation Ref Debit Credit Balance Jan 1 Mar 1 July 1 Balance 255000 Issue of share...View the full answer
Accounting Principles Part 3
ISBN: 978-1118306802
6th Canadian edition Volume 1
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow
