Question

(1) Shares are attractive to investors because shareholders are not liable for the corporation's actions and debts and because shares are easily transferred.

True or False

(2) Fast Cars Inc. was authorized to issue 50,000 $1.50 preferred shares and 300,000 common shares. During 2020, its first year of operations, the following selected transactions occurred:

Jan.	1	6,000 of the preferred shares were issued at $11.00 per share; cash.
Feb.	5	15,000 of the common shares were issued for a total of $136,000; cash.
Mar.	20	3,000 of the common shares were given to the organizers of the corporation regarding their efforts. The shares were valued at a total of $29,800.
May	15	13,000 preferred shares and 25,000 common shares were issued at $13.30 and $9.70 respectively; cash.
Dec.	31	The Income Summary account was closed; it showed a debit balance of $339,000. December 31 is Fast Car’s year-end.

Required:
a. Journalize the above transactions.

b. Prepare the equity section of Fast Car’s balance sheet at December 31, 2020. (Amounts to be deducted should be indicated by a minus sign.)

c. Not available in Connect.

Answer 1

Q-1) Answer : True

Shares are attractive to investors because shareholders are not liable for the corporation's actions and debts and because shares are easily transferred

Q-2)

a.

Date	Account title and explanation	Debit	Credit
Jan 1	Cash [6,000 x $11.00]	$66,000
	Preferred shares		$66,000
	[To record issuance of preferred shares for cash]
Feb 5	Cash	$136,000
	Common shares		$136,000
	[To record issuance of common shares for cash]
Mar 20	Organization expense	$29,800
	Common shares		$29,800
	[To record shares given to organizers]
May 15	Cash	$415,400
	Preferred shares [13,000 x $13.30]		$172,900
	Common shares [25,000 x $9.70]		$242,500
	[To record issuance of preferred and common shares]
Dec 31	Retained earnings	$339,000
	Income summary		$339,000
	[To close income summary account]

b.

Balance Sheet (partial)
At December 31,2020
Stockholder's equity
Paid-in capital:
Preferred shares [$66,000 + $172,900]	$238,900
Common shares [$136,000 + $29,800 + $242,500]	$408,300
Total paid-in capital	$647,200
Retained earnings	($339,000)
Total Stockholder's equity	$308,200