Challenge Reflaction

Task 1: Francesca and Sophia have decided to convert HHEC from a sole proprietorship to a corporation. During the year, HHEC Corp. issues common stock and pays dividends on that common stock. Sophia gives you a list of transactions to record the entries for the issuance of common stock and the payment of cash dividends. At the end of Year 2, Sophia and Francesca would like to know how much is in retained earnings HHEC Corp. and what the ending value of stockholders’ equity is.

A. On January 1, Year 2, HHEC Corporation issues 10,000 shares of $100 par 10% preferred stock for $100 per share B. On January 1, Year 2 HHEC Corporation issues 25, 000 shares of $20 par value common stock with a par value of $20, for $25 per share C. On March 1, Year 2, HHEC declares a $1 cash dividend per share on its common stock, to stockholders of record on March 15, payable April 1. D. On March 1, Year 2, HHEC declared a 10% cash dividend on its preferred stock payable March 15. E. On June 1, Year 2, HHEC declared a 15% Common stock dividend to stockholders of record on June 15, distributable June 30. The market price of the stock was $30 per share. F. HHEC earned net income for Year 2 of $255,000

For Part A please journalize the transactions. Please note there is Task 1B on next tab.

ANSWER 1-Jan Cash 1,000,000 Preferred Stock 1,000,000

1-Jan Cash 625,000 Common Stock 500,000 Additional Paid in Capital- Common Stock 125,000

1-Mar Retained Earnings 25,000 Cash Dividends Payable 25,000

1-Mar, Retained Earnings 100,000 Cash Dividends Payable 100,000

15-Mar, Cash Dividends Payable 100,000 Cash 100,000

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1-Apr, Cash Dividends Payable 25,000 Cash 25,000

1-Jun, Retained Earnings 112,500 Common Stock 75,000 Additional Paid in Capital- Common Stock 37,500

31-Dec Income Summary 255,000 Retained Earning 255,000

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Task 1b: At the end of Year 2, Sophia and Francesca would like to know how much is in retained earnings HHEC Corp. and what the ending value of stockholders’ equity is.

Using your journal entries from Task 1a: B) Prepare a statement of Retained Earnings, assuming the beginning balance is $35,000 C) Prepare a Stockholders Equity section

Answer: HHEC Corporation

Statement of Retained Earnings For the year ended December 31, Year 2

Beginning Balance 35,000 Dividends Paid 237,500 Income 255,00 Ending Balance 52,500

HHEC Corporation Balance Sheet (partial)

For the year ended December 31, Year 2 Assets Cash 1,500.000

Stockholder Equity Common Stock 575,000 Additional Paid in Capital 162,500 Preffered Stock 1,000,000 Retained Earnings 52,500

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