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Corporation at December 31
The post-closing trial balance of Jajoo Corporation at December 31, 2017, contains the
following share- holders' equity accounts:
The post-closing trial balance of Jajoo Corporation at December 31, 2017, contains the
following share- holders' equity accounts:
Retained earnings..............................................................3146,000
1. The January 1, 2017, balance in Common Shares was $1,280,000 (320,000 shares), the
balance in Contributed Surplus-Reacquisition of Common Shares was $30,000, and the
balance in Retained Earnings was $2,443,500.
2. One of the company's shareholders needed cash for a personal expenditure. On January 15,
the company agreed to reacquire 20,000 shares from this shareholder for $7 per share.
3. On July 1, the company corrected a prior period error that resulted in an increase to the Long-
Term Investment account, as well as to the prior year's profit of $250,000 before income tax.
5. The preferred shareholders' dividend was declared and paid in 2017 for two quarters. Due to
a cash shortage, the last two quarters' dividends were not declared or paid.
6. Profit for the year before income tax was $760,000. The company has a 25% income tax
rate.
Instructions
(a) Open general ledger accounts for the shareholders' equity accounts listed in item (1) above
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and enter opening balances.
(b) Prepare journal entries to record transactions (2) to (5) and post to general ledger accounts.
(c) Prepare entries to close dividends and the Income Summary account and post.
TAKING IT FURTHER
Why is the prior period adjustment for the error in a prior year's profit recorded in the Retained
Earnings account instead of being a correction to profit in the 2017 financial statements?
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