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The equity accounts of Donald Corporation on January 1, 2020, were as follows. Share Capital –...

The equity accounts of Donald Corporation on January 1, 2020, were as follows.

Share Capital – Preference 8%, cumulative, $50 par,

  12,000 share authorized and issued           $600,000

Share Capital – Ordinary $1 stated value, 2,200,000 shares authorized,

  1,200,000 shares issued and 1,170,000 shares outstanding      1,200,000

  Share Premium – Preference       120,000

Share Premium – Ordinary​         1,300,000

Retained Earnings​           2,000,000

Treasury Shares – Ordinary (30,000 shares)​      120,000

During 2020, the company had the following transactions and events pertaining to its equity.​

Mar.   1 Issued 35,000 ordinary shares for $175,000.

May. 10   Sold 18,000 treasury shares – ordinary for $90,000.

Aug. 5 Issued 10,000 ordinary shares for a patent valued at $62,000.

Oct. 20 Purchased 1,300 ordinary shares for the treasury at a cost of $7,800.

Dec. 31 Net income for the year was $560,000.

***No dividends were declared during the year.

Required:

a) Journalize the above transactions and closing entry for net income.

b) Prepare the equity section at December 31, 2020.

Solutions

Expert Solution

a]
Date Account Titles and Explanation Debit Credit
1-Mar-20 Cash $         175,000
Share premium-Ordinary $      140,000
Share capital-Ordinary, $1 stated value $        35,000
10-May-20 Cash $           90,000
Treasury shares-Ordinary [18000*4] $        72,000
Share premium-Treasury shares $        18,000
5-Aug-20 Patents $           62,000
Share premium-Ordinary $        52,000
Share capital-Ordinary, $1 stated value $        10,000
20-Oct-20 Treasury shares-Ordinary $ 7,800
Cash $ 7,800
31-Dec-20 Income summary $         560,000
Retained earnings $      560,000
b]
Share Capital – Preference 8%, cumulative, $50 par,
12,000 share authorized and issued          $         600,000
Share Capital – Ordinary $1 stated value, 2,200,000 shares authorized,
1,245,000 shares issued and 1,170,000 shares outstanding      1,200,000 $ 1,245,000
Share Premium – Preference        $ 120,000
Share Premium – Ordinary​          $ 1,492,000
Share Premium – Treasury shares-Ordinary​          $           18,000
Retained Earnings​           [2000000+560000] $ 2,560,000
Treasury Shares – Ordinary (13,300 shares)​ $         (55,800)
Total stockholders' equity $ 5,979,200

ekkarill92 answered 1 year ago
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