Question

The Equitee Corporation was incorporated on January 2, 2019, with two classes of share capital: an unlimited number of common shares and $3 cumulative non-voting preferred shares with an authorized limit of 50,000. During the first year of operations, the following transactions occurred: 1. The company issued 3,400 preferred shares for a total of $85,000 cash, and 10,400 common shares for $23 per share. 2. It issued 3,200 common shares in exchange for a parcel of land with an estimated fair market value of $112,000. 3. The company had sales of $1,068,000 and incurred operating expenses of $943,000 during the year. 4. No dividends were declared during the first year of operations. During the second year of operations, the following transactions occurred: 5. In November, the company's board of directors declared cash dividends sufficient to pay a dividend of $4 on each common share. The dividends were payable on December 14. (Hint: Remember that no dividends can be paid on the common shares until the dividends in arrears and the current dividends on the preferred shares are paid.) 6. In December, the cash dividends from November were paid. 7. In December, the board of directors declared and distributed a 10% stock dividend on the common shares. The estimated market value of the common shares at the time was $24 per share. 8. The company had sales of $1,200,000 and incurred $1,025,000 in operating expenses during the second year.

Answer 1

Debit Credit Calculation Equitee Corporation Date Account Year 1 Cash Preferred Stock Common Stock 324,200 85,000 239,200 =10,400*23 2 112,000 Land Common Stock 112,000 3a 1,068,000 Sales Revenue Income Summary 1,068,000 3b 943,000 Income Summary Operating Expenses 943,000 30 125,000 =1,068,000-943,000 Income Summary Retained Earnings 125,000 4 No entry Year 2 5a 20,400 =3,400*$3*2 years Dividends Declared-Preferred Shares Dividends Payable 20,400 5b 34,000 =((10,400+3,200)*4)-20,400 Dividends Declared-Common Shares Dividends Payable 34,000 6 54,400 Dividends Payable Cash 54,400 7a 32,640 =1,360*24 Common Stock Dividends Common Stock Dividends Distributable 32,640 7b 32,640 Common Stock Dividends Distributable Common Stock 32,640 8a 1,200,000 Sales Revenue Income Summary 1,200,000 8b 1,025,000 Income Summary Operating Expenses 1,025,000 8C 175,000 =1,200,000-1,025,000 Income Summary Retained Earnings 175,000 8d 87,040 Retained Earnings Dividends Declared-Preferred Shares Dividends Declared-Common Shares Common Stock Dividends 20,400 34,000 32,640 Workings Common Stock Dividends Shares Issued Shares Issued Subtotal 10% Stock Dividends Number of Common Shares Issued & 0/s 10,400 3,200 13,600 1,360 14,960 =13,600*10% Note Since cash dividends of $4 per common share were only declared, I think total dividends payable is 13,600*$4 =54,400 Out of that 2 years of pref. div. is 3,400*$3*2 years = 20,400 So Common Dividends = 54,400-20,400 = 34,000

Equitee Corporation Preferred Shares $ 3,400 85,000 Common Shares $ 10,400 239,200 3,200 112,000 Shares Issued Shares Issued Net Income 2019 Pref. Dividends Common Dividends Stock Dividends Net Income 2020 Totals Retained Earnings Totals 324,200 112,000 125,000 125,000 (20,400) (20,400) (34,000) (34,000) (32,640) 175,000 175,000 212,960 681,800 32,640 3,400 85,000 13,600 383,840

Equitee Corporation
Stockholders Equity
December 31, 2020
Stockholders Equity
Preferred Stock	85,000
Common Stock	383,840
Retained Earnings	212,960
Total Stockholders Equity	681,800