The Struther's Corporation was organized on January $1,2003.$ It is authorized to issue $40,000$ shares of $$8,$ no par value cumulative preferred shares and $5,000,000$ common shares of no par value with a stated value of $$2$ per share. The following share transactions were completed during the first year:

Jan. $10$

Issued $90,000$ common shares for cash at $$4$ per share.

Mar. $1$

Issued $10,000$ preferred shares for cash at $$106$ per share.

Apr. $1$

Issued $20,000$ common shares for equipment. The asking price of the equipment was $$84,000$; the fair market value of the shares on this date was $$78,000.$

June $20$

Issued $90,000$ common shares for cash at $$5$ per share.

Aug. $1$

Issued $20,000$ common shares to lawyers in payment for their bill of $$84,000$ for services rendered in helping the company organize.

Sept. $1$

Issued $20,000$ common shares for cash at $$4\mathrm{.}50$ per share.

Nov. $1$

Issued $2,000$ preferred shares for cash at $$109$ per share.

Instructions

$($a$)$ Journalize the transactions.

$($b$)$ Post to the shareholders' equity accounts.

$($c$)$ Assuming that that net income for the year was $$316,000,$ prepare the shareholders' equity section of the balance sheet at December $31,2003.$

$($d$)$ Assuming that that net income for the year was $$316,000,$ calculate return on equity and book value per common share at December $31,2003.$

Action Plan

When common shares have no par value and there is a stated value, Common Shares is credited for the stated value. Any excess above the stated value is credited to Contributed Capital in Excess of Stated Value Common Shares

In a noncash transaction, the fair market value of what is given up should be used. If that is not clearly identifiable, then the fair market value of what is received should be used.

When preferred shares have no par value, Preferred Shares is always credited for the value the shares are issued for.

Return on equity is calculated as Net Income divided by Average Shareholders' Equity. Averages are calculated by adding together the beginning and ending balances and dividing the result by $2.$ In the first year, the opening equity is zero.

To calculate the book value per share, first determine the preferred shareholders' equity $($share capital plus any dividends in arrears$).$ Subtract the preferred shareholders' equity from the total shareholders' equity to determine the common shareholders' equity. Then divide the common shareholders' equity by the number of common shares.