Question

Hammond Manufacturing Inc. was legally incorporated on January 2, 2017. Its articles of incorporation granted it the right to issue an unlimited number of common shares and 100,000 shares of $14.0 noncumulative preferred shares. The following transactions are among those that occurred during the first three years of operations:

2017
Jan. 12	Issued 40,400 common shares at $5.6 each.
20	Issued 3,000 common shares to promoters who provided legal services that helped to establish the company. These services had a fair value of $44,000.
31	Issued 88,000 common shares in exchange for land, building, and equipment, which have fair market values of $368,000, $488,000, and $56,000 respectively.
Mar. 4	Purchased equipment at a cost of $8,240 cash. This was thought to be a special bargain price. It was felt that at least $11,600 would normally have had to be paid to acquire this equipment.
Dec. 31	During 2017, the company incurred a loss of $104,000. The Income Summary account was closed.
2018
Jan. 4	Issued 3,000 preferred shares at $94 per share.
Dec. 31	The Income Summary account was closed. Profit for 2018 was $224,000.
2019
Dec. 4	The company declared a cash dividend of $0.92 per share on the common shares payable on December 18 and also declared the required dividend on the preferred shares.
18	Paid the dividends declared on December 4.
31	Profit for the year ended December 31, 2019, was $226,240. The Income Summary account was closed. Prepare the statement of changes in equity for the year ended December 31, 2019

Answer 1

2017
Date	Account Titles	Debit	Credit
Jan-12	Cash	$     2,26,240		=40400*5.6
	Common Stock		$     2,26,240
	(Issued 40400 common shares for cash)
Jan-20	Organization/Legal Expenses	$        44,000
	Common Stock		$        44,000
	(Issued 3000 common shares to promoters)
Jan-31	Land	$     3,68,000
	Building	$     4,88,000
	Equipment	$        56,000
	Common Stock		$     9,12,000
	(Issued 88000 common shares in exchange of assets)
Mar-04	Equipment	$           8,240
	Cash		$          8,240
	(Purchased equipment for cash)
Dec-31	Retained Earnings	$     1,04,000
	Income Summary		$     1,04,000
	(To transfer loss)
2018
Jan-04	Cash	$     2,82,000		=3000*94
	Preferred Stock		$     2,82,000
	(Issued 3000 preferred shares)
Dec-31	Income Summary	$     2,24,000
	Retained Earnings		$     2,24,000
	(To transfer profit)
2019
Dec-04	Retained Earnings	$     1,62,888		=(40400+3000+88000)*0.92+3000*14
	Dividend Payable		$     1,62,888
	(Cash dividend declared)
Dec-18	Dividend Payable	$     1,62,888
	Cash		$     1,62,888
	(Paid dividend declared)
Dec-31	Income Summary	$     2,26,240
	Retained Earnings		$     2,26,240
	(To transfer profit)

Statement of changes in equity
for year ended December 31, 2019
	Common Stock	Preferred Stock	Retained Earnings	Total
Beginning Balance	$   11,82,240	$     2,82,000	$   1,20,000	$ 15,84,240
Add : Net Income			$   2,26,240	$    2,26,240
Add : Shares issued	$                 -	$                 -		$                -
	$   11,82,240	$     2,82,000	$   3,46,240	$ 18,10,480
Less : Dividend paid			$   1,62,888	$    1,62,888
Ending Balance	$ 11,82,240	$    2,82,000	$ 1,83,352	$ 16,47,592