Question

Splish Brothers Inc., a private company, is authorized to issue an unlimited number of common shares and 160,000 noncumulative $3 preferred shares. It began operations on January 1, 2021, and the following are selected transactions during 2021.

Jan.	1		Issued 480,000 common shares for $240,000 cash.
	2		Issued 48,000 preferred shares for $30 cash per share.
Dec.	1		Declared a total of $235,200 in dividends, payable on January 5, to shareholders of record on December 13.
	31		Determined that it had total revenues of $937,000 and operating expenses of $620,000.

Splish Brothers elected to report under ASPE. It has a 15% income tax rate and paid income tax instalments during the year of $39,550.

Record the share issue and dividend transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit

	(To record issuance of shares.)

	(To record issuance of shares.)
Dec. 1
	(To record declaration of dividend.)

Question Part Score

--/4

Prepare a partial income statement starting with profit before income tax and record an adjusting entry for income tax. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

SPLISH BROTHERS INC. Income Statement (Partial)

		$

$

Date	Account Titles and Explanation	Debit	Credit
Dec. 31
	(To record income tax expense.)

Question Part Score

--/2

Prepare a statement of retained earnings. (List items that increase retained earnings first.)

SPLISH BROTHERS INC. Statement of Retained Earnings

		$

:

:

	$

$

Question Part Score

--/3

Prepare the shareholders’ equity section of the balance sheet.

SPLISH BROTHERS INC. Balance Sheet (Partial)

		$

$

Answer 1

Answer:

Date	Particulars	Debit ($)	Credit ($)
Jan 1	Cash	240000
	Common Shares - Paid In		240000
	(To record issuance of shares)
Jan 2	Cash (48000*30)	1440000
	Preference Shares - Paid In		1440000
	(To record issuance of shares)
Dec 1	Dividend - Preference shares (48000*3)	144000
	Dividend - Common Shares (235200-144000)	91200
	Dividend payable		235200
	(To record declaration of dividend)

Income Statement - Partial
Income before Taxes	317000
Less: Income Tax @ 15%	47550
Net Income	269450
Adjusting Entry
Income Tax Expense	8000
Income Tax Payabale (47550-39550)		8000

Statement of Retained Earnings
Opening Balance		0
Add: Net Income		269450
Balance		269450
Less:
Dividend - Preferred shares (48000*3)	144000
Dividend - Common Shares (235200-144000)	91200	235200
Retained Earnings as on Dec 31		34250

Balance Sheet - Partial
Shareholders Equity
Common Shares - Paid In	240000
Preference Shares - Paid In	1440000
Total Paid In Capital	1680000
Retained Earnings	34250
Total Sharehoders Equity	1714250