Question

Edgar Corporation was authorized to issue 100,000 shares of $8 par common stock and 50,000 shares of $80 par, 4 percent, cumulative preferred stock. Edgar Corporation completed the following transactions during its first two years of operation:

2016

Jan. 2 Issued 25,000 shares of $8 par common stock for $10 per share.

Jan. 15 Issued 2,000 shares of $80 par preferred stock for $90 per share.

Feb. 14 Issued 20,000 shares of $8 par common stock for $12 per share.

Dec. 31 During the year, earned $280,000 of cash revenues and paid $165,000 of cash operating expenses.

Dec. 31 Declard the cash dividend on outstanding shares of preferred stock for 2016. The dividend will be paid on January 31 to stockholders of record on January 15, 2017.

Dec. 31 Closed revenue, expense, and dividend accounts to the retained earnings account.

REQUIRED

a. Prepare a journal entry for the transaction of 2016 and post them to T-accounts.

b. Prepare the stockholders equity section of the balance sheet at December 31, 2016.

Answer 1

Journal Entries						T-account
date	explanation	debit	credit			cash
					common stock	200000	operating expense	165000
2-Jan	cash	250000			additional paid in capital-common	50000	BALANCE	785000
	common stock		200000		preferred stock	160000
	additional paid in capital-common		50000		additional paid in capital-preferred	20000
					common stock	160000
15-Jan	cash	180000			additional paid in capital-common	80000
	preferred stock		160000		revenue	280000
	additional paid in capital-preferred		20000		total	950000	total	950000
14-Feb	cash	240000				COMMON STOCK
	common stock		160000		BALANCE	360000	cash	200000
	additional paid in capital-common		80000				cash	160000
31-Dec	cash	280000				additional paid in capital-common
	revenue		280000		BALANCE	130000	CASH	50000
							cash	80000
31-Dec	operating expense	165000
	cash		165000			preferred stock
					BALANCE	160000	cash	160000
31-Dec	retained earning	6400
	dividend payable-preferred stock		6400			additional paid in capital-preferred
					BALANCE	80000	cash	80000
31-Dec	revneue	280000
	income summary		280000			REVENUE
					CASH	280000	INCOME SUMMARY	280000
31-Dec	income summary	165000
	operating expense		165000			operating expense
					income summary	165000	CASH	165000
31-Dec	income summary	115000
	retained earning		115000			RETAINED EARNING
					DIVIDEND PAYABLE	6400	income summary	115000
31-Dec	retained earning	6400			BALANCE	108600
	dividend payable		6400
						DIVIDEND PAYABLE
BALANCE SHEET					BALANCE	6400	RETAINED EARNING	6400
Equity shareholders
common stock		360000				INCOME SUMMARY
preferred stock		160000			operating expense	165000	REVENUE	280000
additional paid in capital-common		130000			retained earning	115000
additional paid in capital-preferred		80000			TOTAL	280000	TOTAL	280000
RETAINED EARNING		108600
shareholders equity			838600