Question

Provide journal entries to following question

Problem 11-4A (Part Level Submission)

On January 1, 2018, Crown Point Ltd., a private company, had the following shareholders’ equity accounts:

Preferred shares, $1 noncumulative, unlimited number authorized, none issued
Common shares, unlimited number authorized, 2.80 million issued		$2,800,000
Retained earnings		3,900,000

The following selected transactions occurred during 2018:

Jan.	2		Issued 210,000 preferred shares at $25 per share.
Feb.	8		Issued 100,000 common shares in exchange for land. On this date, the current value of the land was $206,000. The common shares have not recently traded, but the last time they traded, they sold for $2.50 per share.
Mar.	5		Declared the quarterly cash dividend to preferred shareholders of record on March 20, payable April 2.
Apr.	18		Issued 426,000 common shares at $3.00 per share.
June	5		Declared the quarterly cash dividend to preferred shareholders of record on June 20, payable July 1.
Sept.	5		Declared the quarterly cash dividend to preferred shareholders of record on September 20, payable October 1.
Oct.	4		Issued 41,000 preferred shares at $25 per share.
Dec.	5		Declared the quarterly cash dividend to preferred shareholders of record on December 20, payable January 1.
	14		Declared a cash dividend of $0.50 per share to the common shareholders of record on December 31, payable January 10.
	31		Net income for the year was $1.05 million.

Answer 1

1. Issue of preference shares :

Jan 1 Bank A/c Dr. 52,50,000

To Preference share captial A/c Cr. 52,50,000

2. As per the principle of historical cost, an asset should be recorded at the value at which it paid for not the market value of the asset .

feb 8 Land A/c Dr. 250000

Common Share capital A/c 250000

3.on mar 20 the dividend is declared but it is payable only on Apr 2, so accrual entry is currently passed and the payment entry is passed on apr 2. The preference dividend is 1$ per year that means 0.25$ per quarter (210000*.25)

mar 20 Retained Earning A/c Dr. 52500

Dividend payable A/c Cr. 52500

apr 2 Dividend payable A/c Dr. 52500

Bank A/c Cr. 52500

4. Amount of common share capital issued 426000*3 =1278000( which is issued $2 above the face value of share which is one dollar, so share premium = 426000*2 = 852000

apr 18 Bank A/c Dr. 1278000

Common share capital A/c Cr.426000

Share premium A/c Cr.852000

5.on jun 20 the dividend is declared but it is payable only on jul 1, so accrual entry is currently passed and the payment entry is passed on jul 1. The preference dividend is 1$ per year that means 0.25$ per quarter (210000*.25)

jun 20    Retained Earning A/c Dr. 52500

Dividend payable A/c Cr. 52500

jul 1 Dividend payable A/c Dr. 52500

Bank A/c Cr. 52500

6.on sep 20 the dividend is declared but it is payable only on oct 1, so accrual entry is currently passed and the payment entry is passed on oct 1. The preference dividend is 1$ per year that means 0.25$ per quarter (210000*.25)

sep 20    Retained Earning A/c Dr. 52500

Dividend payable A/c Cr. 52500

oct 1 Dividend payable A/c Dr. 52500

Bank A/c Cr. 52500

7. Issuance of preference share 41000@25$ = 10,25,000

Oct 4 Bank A/c Dr. 10,25,000

Preference share capital A/c Cr. 1025000

8.on dec 20 the dividend is declared but it is payable only on Jan 1, so accrual entry is currently passed and the payment entry is passed on Dec 1. The preference dividend is 1$ per year that means 0.25$ per quarter (251000*.25)

sep 20    Retained Earning A/c Dr. 62750

Dividend payable A/c Cr. 62750

oct 1 Dividend payable A/c Dr. 62750

Bank A/c Cr. 62750

9. Declared cash dividend 0.5$ per share(face value = 1$ per share) on dec 31 (2,800,000 + 100000+426000)*.5 = 1663000. payable on jan 10

Dec 31 Retained earning A/c Dr. 1663000

Dividend payable A/c Cr. 1663000

jan 10 Dvidend payable A/c Dr.1663000

Bank A/c Cr. 1663000

10. net income generated shall be transferred to retained earnings in order to carry forward to tthe next year.

Dec 31 profit and loss A/c Dr. 1050000

retained earnings A/c Cr. 1050000