80.2K

Verified Solution

Link Copied!

Youve been hired to perform an audit of Hubbard Company for the year ended December 31, 2019. You find the following account balances related to shareholders equity:

Preferred stock, $100 par	$ 30,000
Common stock, $10 par	66,000
Capital surplus	(15,700)
Retained earnings	174,000

Because of the antiquated terminology and negative balance, you examine the Capital Surplus account and find the following entries:

	Credit (Debit)
Additional paid-in capital on common stock	$ 29,300
Capital from donated land	16,300
Treasury stock (600 common shares at cost)	(10,200)
Additional paid-in capital on preferred stock	3,400
Stock dividend (50%)	(19,000)
Prior period adjustment (net of income taxes)	(12,000)
Loss from fire (uninsured), 2018	(17,600)
Property dividend declared	(6,200)
Cash dividends declared	(24,900)
Balance	$ (40,900)

Your examination of the Preferred Stock and Common Stock accounts reveals that the amounts shown correctly state the total par value of the issued capital stock. The Retained Earnings account contains the accumulated earnings of the company, with the exception of any items of retained earnings that were inappropriately debited or credited to the Capital Surplus account.

Required:

1.	Prepare whatever journal entries are necessary to eliminate the Capital Surplus account and to correct Hubbards shareholders equity accounts.
2.	Prepare a corrected shareholders equity section of Hubbards December 31, 2019, balance sheet. Include any related notes to its financial statements.

X

Labels and Amount Descriptions

CHART OF ACCOUNTSHubbard CompanyGeneral Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
300	Capital Surplus
305	Preferred Stock
311	Common Stock
321	Additional Paid-in Capital on Preferred Stock
322	Additional Paid-in Capital on Common Stock
329	Unrealized Capital from Donation of Land
331	Retained Earnings
335	Treasury Stock

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Labels
Contributed Capital
Amount Descriptions
Total contributed capital
Total contributed capital, retained earnings, and unrealized capital
Total shareholders equity

2. Prepare a corrected shareholders equity section of Hubbards December 31, 2019, balance sheet. Include any related notes to its financial statements.

Balance Sheet Instructions

HUBBARD COMPANY

Shareholders' Equity

December 31, 2019

1
2
3
4
5
6
7
8
9
10
11

1. Prepare a journal entry to eliminate the Capital Surplus account and to correct Hubbards shareholders equity accounts on December 31.

General Journal Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9

Answer & Explanation Solved by verified expert

See Answer