Question

Whispering Winds Corporation began business in 2017 by issuing 94000 shares of $5 par common stock for $9 per share and 23000 shares of 9%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2017 balance sheet, Whispering Winds would report

Preferred Stock ( 10.500 shares) $525,000
Paid-in Capital in Excess of Parâreferred 73,500
Common Stock (68, 500 shares) 342,500
Paid-in Capita' in Excess o' ParâCommon Stock 700000
Retained Earning 310,000

During 2020, the following transactions occurred.
Feb.1 Issued 2,000 shares of preferred stock for land having a fair value of $125,000.
Mar.1 Issued 1,300 shares of preferred stock for cash at $70 per share.
July 1 Issued 16,000 shares of common stock for cash at $7 per share.
Sept. 1 Issued 400 shares of preferred stock for a patent. The asking price of the patent was $28,000. Market price for the preferred stock was $70 and the fair value for the patent was indeterminable.
Dec. 1 Issued 8,000 shares of common stock for cash at $7.50 per share.
Dec. 31 Net income for the year was $260,000. No dividends were declared.

Required:
Journalize the transactions and the closing entry for net income.

Answer 1

Feb 1

Dr Land $125,000

Cr Preferred Stock ($10 par) $20,000

Cr Paid-in Capital in Excess of Par value/preferred stock $105,000

Mar 1

Dr Cash $91,000

Cr Preferred Stock ($10 par)$13,000

Cr Paid-in Capital in Excess of Par/Preferred Stock $78,000

July 1

Dr Cash $112,000

Cr Common Stock ($5 par)80,000

Cr Paid-in Capital in Excess of Par/Common Stock $32,000

Sept 1

Dr Patent $28,000

Cr Preferred Stock ($10 par)$4,000

CrPaid-in Capital in Excess of Par/Preferred Cr Stock $24,000

Dec 1

Dr Cash $60,000

Cr Common Stock ($5 par) $40,000

Cr Paid-in Capital in Excess of Par/Common Stock $20,000

Dec 31

Dr Income Summary $260,000

Cr Retained Earnings $260,000

Step-by-step explanation:

Preparation of the Journal entries and the closing entry for net income.

Feb 1

Dr Land $125,000

Cr Preferred Stock ($10 par) $20,000

($2,000*$10)

Cr Paid-in Capital in Excess of Par value/preferred stock $105,000

($125,000-$20,000)

(Issued 2,000 shares preferred stock for land, fair value $125,000)

Mar 1

Dr Cash $91,000

(1,300*$70)

Cr Preferred Stock ($10 par)$13,000

($10*1,300)

Cr Paid-in Capital in Excess of Par/Preferred Stock $78,000

($91,000-$13,000)

(Issued 1,300 shares preferred stock for cash, $70 per share)

July 1

Dr Cash $112,000

(16,000*$7)

Cr Common Stock ($5 par)80,000

(16,000*$5)

Cr Paid-in Capital in Excess of Par/Common Stock $32,000

($112,000-$80,000)

(Issued 16,000 shares common stock, $7 per share)

Sept 1

Dr Patent $28,000

(400*$70)

Cr Preferred Stock ($10 par)$4,000

($10*400)

CrPaid-in Capital in Excess of Par/Preferred Cr Stock $24,000

($28,000-$4,000)

(Issued 400 shares of preferred stock, trade for patent, unable to value)

Dec 1

Dr Cash $60,000

(8,000*$7.50)

Cr Common Stock ($5 par) $40,000

Cr Paid-in Capital in Excess of Par/Common Stock $20,000

($60,000-$40,000)

(Issued 8,000 shares common stock, $7.50 per share)

Dec 31

Dr Income Summary $260,000

Cr Retained Earnings $260,000

(Net income to retained earnings, closing income summary)