Fix my trial balance and explain Ty Koon, Harry Pitts and Eileen Dover are the f

Question

Fix my trial balance and explain

Ty Koon, Harry Pitts and Eileen Dover are the founders of Sharpe Incorporated. The charter of the corporation authorized 500,000 shares of $5 par common stock, and 50,000 shares of $40 par, 5%, preferred stock. The company began business on January 1 of the current year.

Selected transactions completed by Sharpe Incorporated during the fiscal year-ending December 31, 2013, are as follows:

Jan   1 Issued 16,000 shares of $5 par common stock at $18, receiving cash.

Jan   1 Issued 7,200 shares of $40 par preferred 5% stock at $42 for cash. The dividends are payable semi-annually.

Jan 31   Purchased a two-year insurance policy for $34,080.

Feb   1   Purchased equipment for $290,000 in exchange for paying $50,000, issuing a $50,000, 180-day, 5% note payable, and issuing 9,500 shares of common stock.

May 1   Purchased 1,200 shares of the company’s own common stock at $22 per share.

June 1 Declared a cash dividend at the stated amount on the preferred stock.

June 30 Paid the cash dividend on the preferred stock.

July 1   Issued $1,000,000 of 9-year, 8% bonds with interest payable semiannually. The amount of cash received was $1,092,880.

July 30 Paid the amount due on the note payable signed on February 1.

Aug   1 Sold 450 shares of treasury common stock purchased on May 1 for $26 per share.

Oct 1     Purchased 30,000 of the 100,000 outstanding shares of Precision Corporation for $5.10 per share, plus a $125 commission to the stockbroker.

Oct 16 Sold 250 shares of treasury common stock purchased on May 1 for $20 per share.

Nov. 1    Borrowed $36,000 from Second Bank by issuing a 90-day, 7% note.

Dec   15 Declared a cash dividend at the stated amount to preferred stockholders and $.50 per share on the outstanding common shares. The date of record is December 30, and the dividend is payable January 15, 2014.            

Dec 31 Record revenue for the year of $1,975,000, receiving $500,000 in cash with the remainder on account.

Dec 31 Record expenses for the year (one compound entry). All were paid in cash, except for $30,000 on account.

Rent                             $170,000

                             Utilities                             13,200

                             Salaries                         760,000

                             Payroll tax expense        45,600

                             Advertising                     120,000

                             Medical insurance            32,000

                             Commissions                   63,000

                             Legal and accounting       18,000

                             Miscellaneous                    8,400

Dec. 31 Paid the semiannual interest and amortized the premium on the bonds issued on July 1.

Dec. 31 Received a cash dividend from Precision Corporation of $0.10 per share.

Dec. 31 Precision Corporation reported earnings of $25,000 for the period from October 1 to December 31.

1).Write the Trial Balance

Journal Entries

Date

General Journal

Debit

Credit

Jan.1

Cash (16,000 Shares x $18)

$288,000

Common Stock (16,000 Shares x Par $5)

$80,000

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$208,000

Jan.1

Cash (7200 Shares x $42)

$302,400

Preferred Stock (7200 Shares x Par $40)

$288,000

Paid in Capital in Excess of Par - Preferred Stock (Bal.Fig.)

$14,400

Jan.31

Prepaid Insurance

$34,080

Cash

$34,080

Feb.1

Equipment

$290,000

Cash

$50,000

Notes Payable

$50,000

  Common Stock (9500 Shares x Par $5)

$47,500

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$142,500

May.1

Treasury Stock (1200 Shares x $22)

$26,400

Cash

$26,400

June.1

Retained Earnings (7200*$40*5%)

$14,400

Preferred Stock Dividend Payable

$14,400

June.30

Preferred Stock Dividend Payable

$14,400

Cash

$14,400

July.1

Cash

$1,092,880

Bonds Payable (at face value)

$1,000,000

   Premium on Bonds Payable (Bal. figure)

$92,880

July.30

Notes Payable

$50,000

Interest Expense (50,000*5%*180/360)

$1,250

Cash

$51,250

Aug.1

Cash (450 Shares x $26)

$11,700

Treasury Stock (450 Shares x Cost $22)

$9,900

   Paid in Capital from Treasury Stock (Bal. figure)

$1,800

Oct.1

Equity Investment - Precision Corporation (30000 Shares x $5.10)

$153,000

Commission Expense

$125

Cash

$153,125

Oct.16

Cash (250 Shares x $20)

$5,000

Retained Earnings (Bal. figure)

$500

Treasury Stock (250 Shares x Cost $22)

$5,500

Nov.1

Cash

$36,000

Notes Payable

$36,000

Dec.15

Retained Earnings

$26,900

Preferred Stock Dividend (7200*$40*5%)

$14,400

Common Stock Dividend (0.50*(16000+9500-1200+450+250)

$12,500

Dec.30

No Entry on record date

Dec.31

Accounts Receivable

$1,475,000

Cash

$500,000

Sales Revenue

$1,975,000

Dec.31

Rent

$170,000

Utilities

$13,200

Salaries

$760,000

Payroll tax expense

$45,600

Advertising

$120,000

Medican Insurance

$32,000

Commissions

$63,000

Legal and accounting

$18,000

Miscellaneous

$8,400

   Cash

$1,200,200

   Accounts Payable

$30,000

Dec.31

Interest Expense (Bal figure)

$34,840

Premium on Bonds Payable (92,880/18)

$5,160

Cash Interest Paid (Face Value 1000,000*8%*1/2 semi annual)

$40,000

Dec.31

Cash

$3,000

Equity Investment - Precision Corporation (30,000 Shares x $0.10)

$3,000

Dec.31

Equity Investment - Precision Corporation (25,000*30%)

$7,500

Trial balance:

Equity Income - Precision Corporation

$7,500

The total of the Trial Balance should be $3,937,620. If your balance does not agree, make any necessary corrections before you proceed.

1). Fix my problem why it dosen't come out to be $3,937,620 as Total trial balance.

Hint: something about using 2.5% instead of 5% cuase its half

Date

General Journal

Debit

Credit

Jan.1

Cash (16,000 Shares x $18)

$288,000

Common Stock (16,000 Shares x Par $5)

$80,000

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$208,000

Jan.1

Cash (7200 Shares x $42)

$302,400

Preferred Stock (7200 Shares x Par $40)

$288,000

Paid in Capital in Excess of Par - Preferred Stock (Bal.Fig.)

$14,400

Jan.31

Prepaid Insurance

$34,080

Cash

$34,080

Feb.1

Equipment

$290,000

Cash

$50,000

Notes Payable

$50,000

  Common Stock (9500 Shares x Par $5)

$47,500

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$142,500

May.1

Treasury Stock (1200 Shares x $22)

$26,400

Cash

$26,400

June.1

Retained Earnings (7200*$40*5%)

$14,400

Preferred Stock Dividend Payable

$14,400

June.30

Preferred Stock Dividend Payable

$14,400

Cash

$14,400

July.1

Cash

$1,092,880

Bonds Payable (at face value)

$1,000,000

   Premium on Bonds Payable (Bal. figure)

$92,880

July.30

Notes Payable

$50,000

Interest Expense (50,000*5%*180/360)

$1,250

Cash

$51,250

Aug.1

Cash (450 Shares x $26)

$11,700

Treasury Stock (450 Shares x Cost $22)

$9,900

   Paid in Capital from Treasury Stock (Bal. figure)

$1,800

Oct.1

Equity Investment - Precision Corporation (30000 Shares x $5.10)

$153,000

Commission Expense

$125

Cash

$153,125

Oct.16

Cash (250 Shares x $20)

$5,000

Retained Earnings (Bal. figure)

$500

Treasury Stock (250 Shares x Cost $22)

$5,500

Nov.1

Cash

$36,000

Notes Payable

$36,000

Dec.15

Retained Earnings

$26,900

Preferred Stock Dividend (7200*$40*5%)

$14,400

Common Stock Dividend (0.50*(16000+9500-1200+450+250)

$12,500

Dec.30

No Entry on record date

Dec.31

Accounts Receivable

$1,475,000

Cash

$500,000

Sales Revenue

$1,975,000

Dec.31

Rent

$170,000

Utilities

$13,200

Salaries

$760,000

Payroll tax expense

$45,600

Advertising

$120,000

Medican Insurance

$32,000

Commissions

$63,000

Legal and accounting

$18,000

Miscellaneous

$8,400

   Cash

$1,200,200

   Accounts Payable

$30,000

Dec.31

Interest Expense (Bal figure)

$34,840

Premium on Bonds Payable (92,880/18)

$5,160

Cash Interest Paid (Face Value 1000,000*8%*1/2 semi annual)

$40,000

Dec.31

Cash

$3,000

Equity Investment - Precision Corporation (30,000 Shares x $0.10)

$3,000

Dec.31

Equity Investment - Precision Corporation (25,000*30%)

$7,500

Trial balance:

Account Debit Credit Cash              669,525 Accounts receivable          1,475,000 prepaid insurance                34,080 Equity investment- Precision corporation              157,500 Equipment              290,000 Common stock              127,500 Paid in capital in excess of par - common stock              350,500 Preferred stock              288,000 Paid in capital in excess of par - preferred stock                14,400 Notes payable                36,000 Treasury stock                11,000 Retained earnings                41,800 Bond payable          1,000,000 Accounts payable                30,000 Premium on bonds payable                87,720 Paid in capital from treasury stock                  1,800 Preferred stock dividend                14,400 Common stock dividend                12,500 Sales revenue          1,975,000 Equity income- precision corporation                  7,500 Rent expense              170,000 Interest expense                36,090 Utilities expense                13,200 Salaries expense              760,000 Payroll tax expnese                45,600 Advertising              120,000 Medican insurance                32,000 Commissions                63,000 Legal and accounting                18,000 Commission expense                      125 Miscellaneous                  8,400 Total(wrong)          3,945,320          3,945,320

Equity Income - Precision Corporation

$7,500

Explanation / Answer

Two changes:

1. Half yearly preferred dividend should be 7,200 (7,200*$40*5%*50%). Relevant entries in June as well December have been changed

2. When the treasury stock is sold at a loss, the said loss is deducted from the existing Paid in Capital from Treasury Stock.

So the Retained earnings balance changed from $41,800 to $26,900 (12,500+7,200+7,200). Paid in Capital from Treasury Stock changed to 1,300 and Cash increased by 7,200.

Journal Entries

Date

General Journal

Debit

Credit

Jan.1

Cash (16,000 Shares x $18)

$288,000

Common Stock (16,000 Shares x Par $5)

$80,000

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$208,000

Jan.1

Cash (7200 Shares x $42)

$302,400

Preferred Stock (7200 Shares x Par $40)

$288,000

Paid in Capital in Excess of Par - Preferred Stock (Bal.Fig.)

$14,400

Jan.31

Prepaid Insurance

$34,080

Cash

$34,080

Feb.1

Equipment

$290,000

Cash

$50,000

Notes Payable

$50,000

  Common Stock (9500 Shares x Par $5)

$47,500

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$142,500

May.1

Treasury Stock (1200 Shares x $22)

$26,400

Cash

$26,400

June.1

Retained Earnings (7200*$40*5%)

$7,200

Preferred Stock Dividend Payable

$7,200

June.30

Preferred Stock Dividend Payable

$7,200

Cash

$7,200

July.1

Cash

$1,092,880

Bonds Payable (at face value)

$1,000,000

   Premium on Bonds Payable (Bal. figure)

$92,880

July.30

Notes Payable

$50,000

Interest Expense (50,000*5%*180/360)

$1,250

Cash

$51,250

Aug.1

Cash (450 Shares x $26)

$11,700

Treasury Stock (450 Shares x Cost $22)

$9,900

   Paid in Capital from Treasury Stock (Bal. figure)

$1,800

Oct.1

Equity Investment - Precision Corporation (30000 Shares x $5.10)

$153,000

Commission Expense

$125

Cash

$153,125

Oct.16

Cash (250 Shares x $20)

$5,000

   Paid in Capital from Treasury Stock (Bal. figure)

$500

Treasury Stock (250 Shares x Cost $22)

$5,500

Nov.1

Cash

$36,000

Notes Payable

$36,000

Dec.15

Retained Earnings

$19,700

Preferred Stock Dividend (7200*$40*5%)

$7,200

Common Stock Dividend (0.50*(16000+9500-1200+450+250)

$12,500

Dec.30

No Entry on record date

Dec.31

Accounts Receivable

$1,475,000

Cash

$500,000

Sales Revenue

$1,975,000

Dec.31

Rent

$170,000

Utilities

$13,200

Salaries

$760,000

Payroll tax expense

$45,600

Advertising

$120,000

Medican Insurance

$32,000

Commissions

$63,000

Legal and accounting

$18,000

Miscellaneous

$8,400

   Cash

$1,200,200

   Accounts Payable

$30,000

Dec.31

Interest Expense (Bal figure)

$34,840

Premium on Bonds Payable (92,880/18)

$5,160

Cash Interest Paid (Face Value 1000,000*8%*1/2 semi-annual)

$40,000

Dec.31

Cash

$3,000

Equity Investment - Precision Corporation (30,000 Shares x $0.10)

$3,000

Dec.31

Equity Investment - Precision Corporation (25,000*30%)

$7,500

Equity Income - Precision Corporation

$7,500

Trial balance:

Account

Debit

Credit

Cash

$676,725

Accounts receivable

1475000

prepaid insurance

34080.0

Equity investment- Precision corporation

157500.0

Equipment

290000.0

Common stock

127500

Paid in capital in excess of par - common stock

350500

Preferred stock

288000

Paid in capital in excess of par - preferred stock

14400

Notes payable

36000

Treasury stock

11000.0

Retained earnings

26900.0

Bond payable

1000000

Accounts payable

30000

Premium on bonds payable

87720

Paid in capital from treasury stock

1300

Preferred stock dividend

7200

Common stock dividend

12500

Sales revenue

1975000

Equity income- precision corporation

7500

Rent expense

170000.0

Interest expense

36090.0

Utilities expense

13200.0

Salaries expense

760000.0

Payroll tax expnese

45600.0

Advertising

120000.0

Medican insurance

32000.0

Commissions

63000.0

Legal and accounting

18000.0

Commission expense

125.0

Miscellaneous

8400.0

Total(wrong)

$3,937,620

$3,937,620

Journal Entries

Date

General Journal

Debit

Credit

Jan.1

Cash (16,000 Shares x $18)

$288,000

Common Stock (16,000 Shares x Par $5)

$80,000

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$208,000

Jan.1

Cash (7200 Shares x $42)

$302,400

Preferred Stock (7200 Shares x Par $40)

$288,000

Paid in Capital in Excess of Par - Preferred Stock (Bal.Fig.)

$14,400

Jan.31

Prepaid Insurance

$34,080

Cash

$34,080

Feb.1

Equipment

$290,000

Cash

$50,000

Notes Payable

$50,000

  Common Stock (9500 Shares x Par $5)

$47,500

Paid in Capital in Excess of Par - Common Stock (Bal.Fig.)

$142,500

May.1

Treasury Stock (1200 Shares x $22)

$26,400

Cash

$26,400

June.1

Retained Earnings (7200*$40*5%)

$7,200

Preferred Stock Dividend Payable

$7,200

June.30

Preferred Stock Dividend Payable

$7,200

Cash

$7,200

July.1

Cash

$1,092,880

Bonds Payable (at face value)

$1,000,000

   Premium on Bonds Payable (Bal. figure)

$92,880

July.30

Notes Payable

$50,000

Interest Expense (50,000*5%*180/360)

$1,250

Cash

$51,250

Aug.1

Cash (450 Shares x $26)

$11,700

Treasury Stock (450 Shares x Cost $22)

$9,900

   Paid in Capital from Treasury Stock (Bal. figure)

$1,800

Oct.1

Equity Investment - Precision Corporation (30000 Shares x $5.10)

$153,000

Commission Expense

$125

Cash

$153,125

Oct.16

Cash (250 Shares x $20)

$5,000

   Paid in Capital from Treasury Stock (Bal. figure)

$500

Treasury Stock (250 Shares x Cost $22)

$5,500

Nov.1

Cash

$36,000

Notes Payable

$36,000

Dec.15

Retained Earnings

$19,700

Preferred Stock Dividend (7200*$40*5%)

$7,200

Common Stock Dividend (0.50*(16000+9500-1200+450+250)

$12,500

Dec.30

No Entry on record date

Dec.31

Accounts Receivable

$1,475,000

Cash

$500,000

Sales Revenue

$1,975,000

Dec.31

Rent

$170,000

Utilities

$13,200

Salaries

$760,000

Payroll tax expense

$45,600

Advertising

$120,000

Medican Insurance

$32,000

Commissions

$63,000

Legal and accounting

$18,000

Miscellaneous

$8,400

   Cash

$1,200,200

   Accounts Payable

$30,000

Dec.31

Interest Expense (Bal figure)

$34,840

Premium on Bonds Payable (92,880/18)

$5,160

Cash Interest Paid (Face Value 1000,000*8%*1/2 semi-annual)

$40,000

Dec.31

Cash

$3,000

Equity Investment - Precision Corporation (30,000 Shares x $0.10)

$3,000

Dec.31

Equity Investment - Precision Corporation (25,000*30%)

$7,500

Equity Income - Precision Corporation

$7,500

Trial balance:

Account

Debit

Credit

Cash

$676,725

Accounts receivable

1475000

prepaid insurance

34080.0

Equity investment- Precision corporation

157500.0

Equipment

290000.0

Common stock

127500

Paid in capital in excess of par - common stock

350500

Preferred stock

288000

Paid in capital in excess of par - preferred stock

14400

Notes payable

36000

Treasury stock

11000.0

Retained earnings

26900.0

Bond payable

1000000

Accounts payable

30000

Premium on bonds payable

87720

Paid in capital from treasury stock

1300

Preferred stock dividend

7200

Common stock dividend

12500

Sales revenue

1975000

Equity income- precision corporation

7500

Rent expense

170000.0

Interest expense

36090.0

Utilities expense

13200.0

Salaries expense

760000.0

Payroll tax expnese

45600.0

Advertising

120000.0

Medican insurance

32000.0

Commissions

63000.0

Legal and accounting

18000.0

Commission expense

125.0

Miscellaneous

8400.0

Total(wrong)

$3,937,620

$3,937,620

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