Q1) Chandler Corporation start business on January 2, 2007. It is now time for Chandler to make its financial statements for 2007. Bookkeeper at Chandler was able to complete asset section of balance sheet, but he requires your help to complete liabilities and stockholder's equity sections. Set forth below are Chandler's liability and shareholder's equity accounts before any adjustments. In the course of your work you find certain other items that had not been taken into account when creating general ledger accounts.
Question:
Create journal entries to adjust accounts. Some of accounts already have original entry; though original entry may be misstated. You only require entry to correct. Using "T" accounts may help you with this process. Once you have completed your entries create, in good form, liability and stockholder's equity sections of Chandler's balance sheet. Use suiatble financial statement format, and include suitable parenthetical information where required.
| Accounts payable |
$ 100,000 |
| Additional paid-in capital common stock |
750,000 |
| Common stock, $5 par value, 100,000 shares authorized, 50,000 issued and outstanding |
250,000 |
| Bonds payable |
3,000,000 |
| Notes payable |
44,400 |
| Treasury stock |
<50,000> |
| Preferred stock, $100 par, 8% 10,000 shares authorized, 4,300 issued and outstanding |
430,000 |
| Net income (before adjustments) |
340,000 |
You have discovered following extra information in the course of your work at Chandler, and you have determined that some of accounts above have not been properly stated.
1. Notes payable are from two sources. One is for merchandise Chandler purchased for which it issued a note to Beaumont Corporation in amount if $25,000. Note carries 12% rate of interest and has term of 120 days. The note was issued October 1, 2007. Chandler also borrowed $20,000 from First National Bank on November 16, 2007 by issuing its 90-day non interest bearing note. Note was discounted by bank at 12% and net proceeds were remitted to Chandler.
2. Bonds payable were issued on July 1, 2007. Face value of bonds was $3,000,000, carried a 12% rate of interest and matures in 10 years. Interest on bonds is paid semi-annually. Additionally bonds comprise detachable warrants giving bondholder right to buy for $30, one share of $5 par value common stock of Chandler for the next 10 years. Bonds were sold at par, and at the time of sale the warrants had value of $200,000 (Ignore any amortization of bond premium, discount and interest payable).
3. Only transaction in Treasury stock was recall of 5,000 shares at $10 per share. Chandler uses cost method to account for Treasury stock.
4. Chandler declared semi-annual dividend on December 15 on both preferred and common stock. Common stock dividend was $1.25 per share. Dividend will be payable January 31, 2008.