Question

Use information provided below to answer the questions that follow
Lee Corporation is authorized by its article to issue 100000 shares of $5 preferred shares and an unlimited number of common shares. The company started the year with a balance   of Retained earning of $74,000. The table below shows the transactions that occurred during the year of the company’s operations:

Year 2017
Jan 2 Issued 8000 common shares at $3 per share
Feb 15 Paid the promoters $ 3500 in cash

April 30 Issued 9000 common shares in exchange for a equipment valued at $52000 and land valued at $50000
May 31 Paid $2250 to suppliers in kind [3000 preferred shares and 2000 common shares]
August    31 Issued 2000 preferred shares for cash $90 per share.
Sept    10 Board of directors declared cash dividend of $ 2.25 to common shareholders and the dividend for preferred shares
Dec 31 Paid the dividend both to common shareholder and preferred shareholders
December 31 Closed the account with $52000 balance in the income summary
To the Retained earnings

REQUIRED
(A) Journalize the transactions

(B) Make a statement of Retained earnings

(C) Show the equity section of the balance sheet using the proper





Question 2

XYZ Corporation   provided the following information for 2018. the company closed last year statement of Earnings with $32000


Dividend paid on 50,000 common shares $1.20 per share
Preferred Shares ,$5, 100000 authorized , 25000 shares issued and outstanding $160000
Net income $22300
Paid preferred share dividend for year 2018

Required
Calculate the Retained Earning on December 31, 2018 using a T-Acount

Answer 1

1. JOURNAL ENTRIES:

DATE	GENERAL JOURNAL	DEBIT	CREDIT
JAN 2	CASH A/C	$24000
	TO COMMON EQUITY A/C		$24000
FEB 15	DRAWINGS A/C	$3500
	TO CASH A/C		$3500
APRIL 30	EQUIPMENT A/C	$52000
	LAND A/C	$50000
	TO COMMON EQUITY A/C		$27000
	TO SHARE PREMIUM A/C		$75000
MAY 31	SUPPPLIERS A/C	$2250
	DISCOUNT ON ISSUE A/C	$18750
	TO COMMON EQUITY A/C (3000 *2)		$6000
	TO PREFERRED STOCK (3000 * 5)		$15000
AUG 31	CASH A/C	$180000
	TO PREFERRED STOCK		$10000
	TO SHARE PREMIMUM		$170000
SEPT 10	RETAINED EARNINGS A/C	$54000
	TO DIVIDEND A/C		$54000
DEC 31	DIVIDEND A/C	$54000
	TO CASH A/C		$54000

WORKINGS:

COMMON SHARES = 19000 shares * $2.25 = $42750

PREFERRED SHARES = 5000 shares * $2.25 = $11250

TOTAL DIVIDEND = $42750 + $11250 = $54000.

STATEMENT OF RETAINED EARNINGS :

OPENING RETAINED EARNINGS	$74000
CURRENT YEAR PROFITS	$52000
LESS: DIVIDEND PAID	($54000)
CLOSING RETAINED EARNINGS	$72000

STATEMENT OF EQUITY :

COMMON STOCK :19000 * $3 = $57000

PREFERRED SHARES : 5000 SHARES * $5 = $15000

RETAINED EARNINGS = $72000

TOTAL EQUITY = $144000

2. CALCULATION OF RETAINED EARNINGS :

DEBIT	CREDIT
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
BY OPENING BALANCE	$32000	TO DIVIDEND:
BY NET INCOME	$22300	COMMON STOCK	$60000
		PREFERRED STOCK	$35000
BY CLOSING BALANCE	$40700
TOTAL	$95000	TOTAL	$95000

NOTE :

DIVIDEND PAYABLE ON PREFERRED STOCK = $160000 - PAIDUP CAPITAL $125000 = $35000.

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