Question

Sheffield Corporation is authorized to issue 23,000 shares of $50 par value, 10% preferred stock and 125,000 shares of $5 par value common stock. On January 1, 2020, the ledger contained the following stockholders’ equity balances.

Preferred Stock (11,500 shares)		$575,000
Paid-in Capital in Excess of Par—Preferred Stock		67,000
Common Stock (62,000 shares)		310,000
Paid-in Capital in Excess of Par—Common Stock		650,000
Retained Earnings		280,000

During 2020, the following transactions occurred.

Feb.	1		Issued 2,000 shares of preferred stock for land having a fair value of $129,000.
Mar.	1		Issued 1,200 shares of preferred stock for cash at $65 per share.
July	1		Issued 17,000 shares of common stock for cash at $7 per share.
Sept.	1		Issued 550 shares of preferred stock for a patent. The asking price of the patent was $32,000. Market price for the preferred stock was $70 and the fair value for the patent was indeterminable.
Dec.	1		Issued 7,500 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.

(a)

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Journalize the transactions and the closing entry for net income.

Answer 1

Journal entries

Date	Accounts titles and explination	Debit	Credit
Feb 1	Land	$129,000
	Preferred stock (2,000×$50)		$100,000
	Paid in capital in excess of par - preferred stock		$29,000
March 1	Cash (1,200×$65)	$78,000
	Preferred stock (1,200×$50)		$60,000
	Paid in capital in excess of par - Preferred stock		$18,000
July 1	Cash (17,000×$7)	$119,000
	Common stock (17,000×$5)		$85,000
	Paid in capital in excess of par- Common stock		$34,000
Sep 1	Patent (550×$70)	$38,500
	Preferred stock (550×$50)		$27,500
	Paid in capital in excess of par- Common stock		$11,000
Dec 1	Cash (7,500×$7.50)	$56,250
	Common stock (7,500×$5)		$37,500
	Paid in capital in excess of par- Common stock		$18,750
Dec 31	Income summary	$260,000
	Retained earnings		$260,000

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