Lighthouse Company began operations on January 1. Authorizedwere 25,000 shares of $1 par value common stock and 5,000 shares of10%, $100 par value convertible preferred stock. The followingtransactions involving stockholders equity occurred during thefirst year of operations:
Jan. 1 Issued 1,000 shares of common stock to the corporationpromoters in exchange for property valued at $23,000 and servicesvalued at $5,000. The property had cost the promoters $18,000 threeyears before and was carried on the promoters books at $15,000.
Feb. 23 Issued 1,500 shares of convertible preferred stock witha par value of $100 per share. Each share can be converted to fiveshares of common stock. The stock was issued at a price of $120 pershare, and the company paid $6,000 to an agent for selling theshares.
Mar. 10 Sold 2,500 shares of the common stock for $26 per share.Issue costs were $2,000.
Apr. 10 Sold 5,000 shares of common stock under stocksubscriptions at $37 per share. No shares are issued until asubscription contract is paid in full. No cash was received.
July 14 Exchanged 1,200 shares of common stock and 190 shares ofpreferred stock for a building with a fair market value of $72,000.The building was originally purchased for $65,000 by the investorsand has a book value of $48,000. In addition, 900 shares of commonstock were sold for $27,000 in cash.
Aug. 3 Received payments in full for half of the stocksubscriptions and payments on account on the rest of thesubscriptions. Total cash received was $138,000. Shares of stockwere issued for the subscriptions paid in full.
Dec. 1 Declared a cash dividend of $10 per share on preferredstock, payable on December 31 to stockholders of record on December15, and a $1.50-per-share cash dividend on common stock, payable onJanuary 5 of the following year to stockholders of record onDecember 15. (No dividends are paid on unissued subscribedstock.)
31 Paid the preferred stock dividend.
31 Received notice from holders of stock subscriptions for 1,000shares that they would not pay further on the subscriptions becausethe price of the stock had fallen to $19 per share. The amountstill due on those contracts was $35,000. Amounts previously paidon the contracts are forfeited according to the agreements.
Net income for the first year of operations was $80,000. Assumethat revenues and expenses were closed to a temporary account,Income Summary. Use this account to complete the closingprocess.
Instructions:
1. Prepare journal entries to record the preceding transactionson Lighthouse books.
2. Prepare the Stockholders Equity section of the balance sheetat December 31 for Lighthouse.