Question

Tactex Controls Inc. Equity Section of the Balance Sheet December 31, 2019

Contributed capital: Preferred shares, $1.2 cumulative, unlimited shares authorized; 11,000 shares issued and outstanding $ 383,000

Common shares, unlimited shares authorized; 66,000 shares issued and outstanding 726,000

Total contributed capital $ 1,109,000

Retained earnings 369,000

Total equity $ 1,478,000

In 2020 and 2021, the company had the following transactions affecting shareholders and the equity accounts:

2020 Jan.

1 Sold 21,000 common shares at $9.74 per share.

5 The directors declared a total cash dividend of $222,000 payable on Feb. 28 to the Feb. 5 shareholders of record. Dividends had not been declared for the years 2018 and 2019. All of the preferred shares had been issued during 2018.

Feb. 28 Paid the dividends declared on January 5.

July 1 Sold preferred shares for a total of $155,900. The average issue price was $20 per share.

Dec. 31 Closed the dividend accounts along with the $575,900 credit balance in the Income Summary account.

2021 Sept. 5

The directors declared the required cash dividend on the preferred shares and a $0.5 per common share cash dividend payable on October 28 to the October 5 shareholders of record.

Oct. 28 Paid the dividends declared on September 5.

Dec. 31 Closed the Cash Dividends account along with the $542,300 credit balance in the Income Summary account.

Required:

1. Prepare journal entries to record the transactions and closings for 2020 and 2021. The company uses a cash dividends account to record declared dividends.

2. Prepare a statement of changes in equity for the year ended December 31, 2021. (Amounts to be deducted should be indicated by a minus sign.)

3. Prepare the equity section of the company’s balance sheet as of December 31, 2021.

Answer 1

Date	Account	Debit	Credit
Jan 1 2020	Cash	$204,540
	Common Stock		$204,540
	(being common shares sold) 21000*9.74
Jan 5 2020	Cash Dividends	$222,000
	Preferred Dividend Payable (11,000*1.2*3 Years)		$39,600
	Common Stock Dividend Payable (222,000-39,600)		$182,400
	(being dividend declared)
Feb 28 2020	Preferred Dividend Payable	$39,600
	Common Stock Dividend Payable	$182,400
	Cash		$222,000
	(being dividend paid)
Jul 1 2020	Cash	$155,900
	Preferred Shares		$155,900
	(being preferred shares sold) 155,900/20=7795 Shares
Dec 31 2020	Retained Earnings	$222,000
	Cash Dividends		$222,000
	(being dividend account closed)
Dec 31 2020	Income Summary	$575,900
	Retained Earning		$575,900
	(being income account closed)
Sep 5 2021	Cash Dividends	$66,054
	Preferred Dividend Payable (18795*1.2)		$22,554
	Common Stock Dividend Payable (66000+21000)*0.5		$43,500
	(being dividend declared)
Oct 28 2021	Preferred Dividend Payable	$22,554
	Common Stock Dividend Payable	$43,500
	Cash		$66,054
	(being dividend paid)
Dec 31 2021	Retained Earnings	$66,054
	Cash Dividends		$66,054
	(being dividend account closed)
Dec 31 2021	Income Summary	$542,300
	Retained Earning		$542,300
	(being income account closed)
Requirement 2	Statement of change in equity Dec 31 2021
		Preferred Shares	Common Shares	Retained Earning	Total Equity
	Balance January 1	$538,900	$930,540	$722,900	$2,192,340
	Issuance of Shares	$-	$-	$-	$-
	Net Income			$542,300	$542,300
	Dividends			$-66,054	$-66,054
	Total	$538,900	$930,540	$1,199,146	$2,668,586
Working	Statement of change in equity Dec 31 2020
		Preferred Shares	Common Shares	Retained Earning	Total Equity
	Balance January 1	$383,000	$726,000	$369,000	$1,478,000
	Issuance of Shares	$155,900	$204,540		$360,440
	Net Income			$575,900	$575,900
	Dividends			$-222,000	$-222,000
	Total	$538,900	$930,540	$722,900	$2,192,340
Requirement 3	Equity Section
	Contributed Capital
	Preferred shares, $1.20 cumulative, unlimited shares authorized,		$538,900
	18,795 shares issued and outstanding
	Common shares, unlimited shares authorized		$930,540
	87,000 shares issued and outstanding
	Total Contributed Capital		$1,469,440
	Retained Earning		$1,199,146
	Total Equity		$2,668,586

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