Question

5.    Early in the year Bill Barnes and several friends organized a corporation called Barnes Communications, Inc. The corporation was authorized to issue 50,000 shares of $100 par value, 10% cumulative preferred stock and 400,000 shares of $2 par value common stock. The following transactions (among others) occurred during the year:

Jan. 6   Issued for cash 20,000 shares of common stock at $14 per share. The shares were issued to Barnes and 10 other investors.

Jan. 7   Issued an additional 500 shares of common stock to Barnes in exchange for his services in organizing the corporation. The stockholders agreed that these services were worth $7,000.

Jan. 12 Issued 2,500 shares of preferred stock for cash of $250,000.

June 4 Acquired land as a building site in exchange for 15,000 shares of common stock. In view of the appraised value of the land and the progress of the company, the directors agreed that the common stock was be valued for purposes of this transaction at $15 per share.

Nov. 15 The first annual dividend of $10 per share was declared on the preferred stock to be paid December 20.

Dec. 20 Paid the cash dividend declared on November 15.

Dec. 31 After the financial statements were prepared, the net income for the year   was $147,200.

a.    Prepare journal entries to record the above transactions.

b.    Prepare the stockholders’ equity section of the Barnes Communications, Inc. balance sheet at December 31, 2016.

Answer 1

a.

Date	General Journal	Debit		Credit
Jan 6	Cash	280000
	Common stock		40000
	Additional paid in capital: Common stock		240000
	Issued 20,000 shares of $2 par value common stock at $14 per share.
Jan 7	Organization Costs Expense	7000
	Common stock		1000
	Additional paid in capital: Common stock		6000
	Issued 500 shares of common stock to Barnes in exchange for services relating to formation of the corporation. Implied issuance price ($7,000 ÷ 500 shares) = $14 per share.
Jan 12	Cash	250000
	10% Cumulative Preferred Stock		250000
	Issued 2,500 shares of $100 par value, 10%, cumulative preferred stock at par value
June 4	Land	225000
	Common Stock		30000
	Additional Paid-in Capital: Common Stock		195000
	Issued 15,000 shares of common stock in exchange for land valued at $225,000 (15,000 shares x $15).
Nov 15	Dividends (Preferred Stock)	25000
	Dividends Payable		25000
	To record declaration of annual dividends of $10 per share on 2,500 preferred shares outstanding.
Dec 20	Dividends Payable	25000
	Cash		25000
	To record payment of dividend declared Nov. 15.
Dec 31	Income Summary	147200
	Retained Earnings		147200
	To close the Income Summary account for the year.
Dec 31	Retained Earnings	25000
	Dividends		25000
	To close the Dividends account.

b.

BARNES COMMUNICATIONS, INC.

PARTIAL BALANCE SHEET

DECEMBER 31 2016

Stockholders' equity:
10% cumulative preferred stock, $100 par, authorized50,000 shares, issued and outstanding 2,500 shares	$250000
Common stock, $2 par, authorized 400,000 shares, issued and outstanding 35,500 shares	71000
Additional paid-in capital: Common stock	441000
Total paid-in capital	762000
Retained earnings*	122200
Total stockholders' equity	$884200

*Computation of retained earnings at December 31, 2016:

Net income in 2016	$147200
Less: Preferred dividends in 2016	(25000)
Retained Earnings	$122200