Reference no: EM132519051

Question 1: Prepare journal entries

After a year of successful business, Tom decides in 2019 to seek outside financing from investors so he can expand operations. Tom is authorized to issue 200,000 shares of $10 par value Common Stock and 50,000 shares of $50 par 5% Non-cumulative Preferred Stock.

1) Recognized a full year of depreciation on the $20,000 Equipment using the straight line method (salvage $5,000 and life 5 years). The Machine was purchased on March 1, 2018 and $2,500 of depreciation has already been recorded.

2) Paid the $2,450 accrued interest from prior year. Accrue interest on the loan for the year 2019. ($70,000 loan borrowed on 7/1/18, 5 years, 7%).

1) Paid the Income Taxes Payable that was accrued at the end of 2018.

2) Purchased 20,000 shares of the common stock issued in #1 and #2 above as treasury stock for $22. (use the cost method of accounting for treasury stock)

3) Paid preferred stock dividends.

4) Paid common stock dividends of $1 per share. Dividends were paid to all shareholders on record after the above transactions were recorded.

5) With excess cash, Tom purchased a 30% (30,000 shares) investment in Board Books, Inc. for $1,100,000. Board Books paid a $1 per share dividend for the year and had net earnings of $600,000. Tom Text, Inc. can exercise significant influence over the Company. The total book value of the assets at acquisition date was 1,700,000 and the total fair value of the tangible assets at acquisition date was $2,400,000. The assets have a remaining useful life of 10 years