3. Dr. Potvin started Ergonomics Inc. (El), on Octo 1000 common shares to Dr. Po

Question

3. Dr. Potvin started Ergonomics Inc. (El), on Octo 1000 common shares to Dr. Potvin in events occurred in December 2017. (8 marks) for exchange for $1,000,000 in cash. Also, he following Er borrowed S 5,000,000. IO year loan, nnd 0% interest-bearing. 7. El received from a customer DNA Inc. a $850,000 cash deposit 17, El issued 5000 preferred Class A shares to investors for $500 b) On I ack 10%, of the principal on December 1 of each subsequent ye for service to be delivered in 2018. each. The articles of stated incorporation (charter) authorizes El to issue 20,000 8%,S500 d) On December 2 value Class A, non-cumulative preferred shares. 8, 2017. El declared and paid a 10%, stock dividend on the common rket value of the common shares before the announcement of the s dividend w mber 31, 2017, EI found that service referred to in (b) was only 80% com and billed the customer accordingly. uired: se pre es required at the year-end pare the necessary journal entries for the transactions above as well as any adj date December 31, 2017.

Explanation / Answer

JOURNAL ENTRIES Date Account Title and Explanation Debit Credit Oct 1,2017 Cash $1,000,000 Common Shares $1,000,000 (To record issue of 1000 common shares) Dec 1, 2017 Cash $5,000,000 Loan payable $5,000,000 (To record 10 year, 10% Loan Payable) Dec 4, 2017 Cash $850,000 Unearned Revenue $850,000 (To record receipt of advance for services to be rendered) Dec 10,2017 Cash $2,500,000 (5000*500) Class A non cumulative 8% preferred shares (To record issue of 5000 Class A 8% non cumulative preference shares) Dec 28,2017 Dividend $100,000 (0.1*1000000) Cash $100,000 (To record payment of 10% dividend on common stock) Dec 31, 2017 Unearned Revenue $680,000 (0.8*850000) Service revenue $680,000 (To record service revenue earned) ADJUSTING ENTRIES Dec 31,2017 Interest Expense $        41,667 (0.1/12)*5000000 Interest Payable $      41,667 ( To record interest on 10%, 10 year loan)

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