Question

Timber Ridge, Inc. was started on January 1, Year. The following events apply to the company’s first year of operation.

1. On January 1 issued 3,000 shares of $1 par value common stock at a market price of $10 per share.

2. Purchased 500 shares of Timber Ridge stock (treasury stock) at a price of $10 per share on February 1.

3. Sold 200 (reissued) shares of the treasury stock at a price of $13 per share on March 15.

4. Earned $15,000 cash revenue.

5. Accrued $8,000 of expenses

6. On August 1 declared a cash dividend of $1 per share. The dividends will be paid on August 31 to the shareholders of record on August 15.

7. Shareholders of record recorded.

8. Paid the dividends declared in 6.

REQUIRED:

1. Prepare the journal entries necessary to record these events in the general journal provided below.

2. Show the impact of these events on the horizontal financial statement model provided on the next page.

Answer 1

Solution:

Journal Entries are as follows:

Jan-01	Bank	Dr.	30,000
	To Share premium			27,000
	To Share Capital			3,000
Feb-01	Treasury stock	Dr	5,000
	To Bank			5,000
Mar-15	Bank	Dr	2,600
	To Share premium			600
	To Treasury Stock			2,000
4	Bank	Dr	15,000
	To Sales			15,000
5	Expenses	Dr	8,000
	To Accrued Expenses			8,000
6	No entry for declaration of dividend
7	Dividend Expenses	Dr	2,700
	To Dividend payable			2,700
8	Dividend Payable	Dr	2,700
	To Bank			2,700

Impact cant be analysed since second page is not given in the question