Question

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	4,100 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 $117,000; 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 $27,900.
May	15	11,100 preferred shares and 15,500 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 $320,000. 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.)

Answer 1

Requirement a:

Date	Account title and explanation	Debit	Credit
Jan 1	Cash [4,100 x $11.00]	$45,100
	Preferred shares		$45,100
	[To record issuance of preferred shares for cash]
Feb 5	Cash	$117,000
	Common shares		$117,000
	[To record issuance of common shares for cash]
Mar 20	Organization expense	$27,900
	Common shares		$27,900
	[To record shares given to organizers]
May 15	Cash	$297,980
	Preferred shares [11,100 x $13.30]		$147,630
	Common shares [15,500 x $9.70]		$150,350
	[To record issuance of preferred and common shares]
Dec 31	Retained earnings	$320,000
	Income summary		$320,000
	[To close income summary account]

Requirement b:

Balance Sheet (partial)
At December 31,2020
Stockholder's equity
Paid-in capital:
Preferred shares [45100+147630]	$192,730
Common shares [117000+27900+150350]	$295,250
Total paid-in capital	$487,980
Retained earnings	($320,000)
Total Stockholder's equity	$167,980

.

Note: Debit balance of income summary account represents 'Net loss'. Therefore it was debited to 'Retained earnings' and Debit balance of 'Retained earnings' should be deducted from total paid in capital.