Question

Nevada Corporation was a private corporation created on January 2, 2020. The articles of incorporation from the Government of Canada authorize Nevada Corporation to issue an unlimited number of common shares and 500,000 shares of $0.50 preferred shares. The company had the following transactions: 2020 Jan. 2 Gave 5,000 common shares to the corporation's legal firm for incorporating the business. The total legal fee was $5,000. 3 Issued 200,000 common shares for cash at $1 per share. 4 Issued 10,000 preferred shares for cash at $10 per share. 4 Exchanged $50,000 cash and 200,000 common shares for a building with a market value of $260,000. Dec. 31 Close Income Summary to Retained Earnings assuming that Nevada had $63,000 of net income for the year a) Journalize the above transactions. Explanations are not needed. b) Prepare the shareholders' equity section of the balance sheet as of the close of business on December 31, 2020.

Answer 1

a) Journal Entries:

Jan. 2:

Legal Fees Expense 5,000

Common Shares 5,000

Jan. 3:

Cash 200,000

Common Shares 200,000

Jan. 4:

Cash 100,000

Preferred Shares 100,000

Building 260,000

Cash 50,000

Common Shares 200,000

Gain on Exchange 10,000

Dec. 31:

Income Summary 63,000

Retained Earnings 63,000

b) Shareholders' Equity Section of the Balance Sheet:

Shareholders' Equity:

Common Shares [200,000 + 5,000] shares

Preferred Shares 10,000 shares

Retained Earnings 63,000

Please note that the common shares issued for legal fees are not included in the shareholders' equity section as they were given to the corporation's legal firm, rather than being issued to shareholders. The common shares issued for cash and the preferred shares are included in the shareholders' equity section, along with the retained earnings.