Question

Prepare each item:

Journal Entries

T-Accounts

Trial Balance

Adjusted Trial Balance

Income Statement

Retained Earnings Statement

Balance Sheet

Dinah Soars, Biff Wellington and Duane Pipe are the stockholders of Sharpe Incorporated. The charter of the corporation authorized 500,000 shares of $2 par common stock, and 100,000 shares of $30 par, 4%, preferred stock. As of January 1, 2020, there were 24,000 shares of common stock issued and outstanding and 5,000 shares of preferred stock issued and outstanding.

Selected transactions completed by Sharpe Incorporated during the fiscal year- ending December 31, 2020, are as follows:

Jan 1 Issued 12,500 shares of $2 par common stock at $22, receiving cash.

Jan 1 Issued 5,800 shares of $30 par, 4%, preferred stock at $70 for cash.

Feb 1 Purchased equipment for $195,000, paying $15,000 cash and financing the remainder with a 180-day, 6% note payable.

Mar 15 Purchased land for $352,000 by issuing 20,000 shares of common stock.

Mar 31 Purchased a two-year insurance policy for $36,600.

May 1 Purchased 1,750 shares of the company’s own common stock at $22 per share.

May 31 Issued $1,000,000 of 8-year, 7% bonds with interest payable semiannually. The amount of cash received was $926,896.

July 30 Paid the amount due on the note payable signed on February 1.

Aug 1 Sold 430 shares of treasury common stock purchased on May 1 for $25 per share.

Sept 15 Declared a 2% stock dividend on common stock to be distributed on September 30 to stockholders of record on September 20. The market price per share on September 15 is $25 per share.

Sept 30 Distributed the stock dividend declared September 15.

Oct 1 Borrowed $40,000 from Second Bank by issuing an 7% note. The note is to be repaid in quarterly payments of principal plus interest totaling $1,860 per quarter.

Oct 16 Sold 370 shares of treasury common stock purchased on May 1 for $18 per share.

Nov 30 Paid the semiannual interest and amortized the premium on the bonds issued on May 31.

Dec 1 Declared a cash dividend at the stated amount to preferred stockholders and .40 per share to common stockholders payable on December 30 to stockholder’s of record on December 16.
(Hint: don’t forget the shares distributed from the stock dividend)

Dec 30 Paid the cash dividends declared on December 1.

Dec 31 Paid the first quarterly installment of the note issued on October 1.

Dec 31 Record revenue for the year of $1,975,000, received $500,000 in cash, the remainder is on account.

Dec 31 Record expenses for the year, paid in cash (one compound entry):

Rent $170,000
Utilities $13,200
Salaries $760,000
Advertising $140,000
Medical insurance $32,000

Commissions $63,000
Legal and accounting $18,000

Miscellaneous $8,400

Adjusting Entries

(1) The employees’ accrued vacation pay at the end of the year was $11,880.

(2) Record depreciation on the equipment purchased on February 1, using the straight-line method. The equipment has an estimated 9-year useful life and an estimated residual value of $2,760.

(3) Record insurance expired on the policy purchased March 31.

(4) Record the adjusting entry for the interest accrued and the amortization of the premium on the bonds payable since the last interest payment. (round the amount to the nearest dollar)

Answer 1

1. In the books of Sharpe Incorporated :

Date	Account Titles	Debit	Credit
		$	$
Jan 1	Cash	275,000
	Common Stock		25,000
	Paid-in Capital in Excess of Par: Common Stock		250,000
Jan 1	Cash	406,000
	Preferred Stock		174,000
	Paid-in Capital in Excess of Par : Preferred Stock		232,000
Feb 1	Equipment	195,000
	Cash		15,000
	Notes Payable		180,000
Mar 15	Land	352,000
	Common Stock		40,000
	Paid-in Capital in Excess of Par : Preferred Stock		312,000
Mar 31	Prepaid Insurance	36,600
	Cash		36,600
May 1	Treasury Stock	38,500
	Cash		38,500
May 31	Cash	926,896
	Discount on Bonds Payable	73,104
	Bonds Payable		1,000,000
July 30	Interest Expense	5,400
	Note Payable	180,000
	Cash		185,400
Aug 1	Cash	10,750
	Treasury Stock ( 430 x $ 22)		9,460
	Paid-in Capital : Treasury Stock		1,290
Sep 15	Retained Earnings	27,600
	Common Stock Dividend Distributable		2,208
	Paid-in Capital in Excess of Par: Common Stock		25,392
Sep 30	Common Stock Dividend Distributable	2,208
	Common Stock		2,208
Oct 1	Cash	40,000
	Notes Payable		40,000
Oct 16	Cash	6,660
	Paid-in Capital: Treasury Stock	1,290
	Retained Earnings	190
	Treasury Stock		8,140
Nov 30	Interest Expense	39,569
	Discount on Bonds Payable ( $ 73,104/ ( 8 x 2) )		4,569
	Cash		35,000
Dec 1	Retained Earnings	35,621
	Dividends Payable : Preferred Stock		12,960
	Dividends Payable: Common Stock		22,661

Contd.:

Dec 30	Dividends Payable: Preferred Stock	12,960
	Dividends Payable: Common Stock	22,661
	Cash		35,621
Dec 31	Interest Expense	700
	Note Payable	1,160
	Cash		1,860
Dec 31	Cash	500,000
	Accounts Receivable	1,475,000
	Revenue		1,975,000
Dec 31	Rent Expense	170,000
	Utilities Expense	13,200
	Salaries Expense	760,000
	Advertising Expense	140,000
	Medical Insurance Expense	32,000
	Commissions Expense	63,000
	Legal and Accounting Expense	18,000
	Miscellaneous Expense	8,400
	Cash		1,204,600

Adjusting Entries:

Date	Account Titles	Debit	Credit
December 31, 2020		$	$
1.	Vacation Pay Expense	11,880
	Accrued Vacation Pay		11,880
2.	Depreciation Expense	19,580
	Accumulated Depreciation		19,580
3.	Insurance Expense	13,725
	Prepaid Insurance		13,725
4.	Interest Expense	6,595
	Discount on Bonds Payable		762
	Interest Payable		5,833