Jones, Smith, and Scott is a partnership. The partners allocate net income and net losses in a 5:3:2 ratio (Jones: Smith: Scott). The post-closing trial balance for the partnership at June 30, 2016 shows the following:
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Book value |
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Cash |
$10,800 |
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Accounts receivable |
19,400 |
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Merchandize inventory |
23,800 |
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Equipment |
35,200 |
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Accumulated depreciation – equipment |
8,200 |
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Accounts payable |
21,600 |
|
Income summary |
20,000 |
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Jones, capital |
13,760 |
|
Smith, capital |
12,000 |
|
Scott, capital |
13,640 |
On July 1, 2016, JSS Corporation was established. It was authorized to issue an unlimited number of no par-value common shares and 500,000, 6%, cumulative preferred shares. On July 3, the partnership was dissolved. JSS Corporation acquired the cash, accounts receivable, and accounts payable from the partnership at their June 30 book values. Merchandize inventory was transferred for its fair value of $20,000. Equipment was transferred for its fair value of $50,000.
On July 1, JSS Corporation issued 100 commons shares to each of Jones, Smith and Scott for a stated value of $1 per share, which they paid in cash. On July 3, it issued notes payable to each of the three shareholders according to their proportion of the net assets of the partnership at book value on June 30, and no par-value, 6% cumulative preferred shares with a stated value of $10 per share to each of the three shareholders according to their proportions of the differences between fair values and book values of the partnership’s net assets at that date.
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Required: |
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1. |
Prepare a statement of partnership liquidation and journal entries to record the dissolution of the partnership at July 3, 2016. |
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2. |
Prepare journal entries to record the issue of common shares on July 1 and the acquisition of assets and liabilities in the records of JSS Corporation at July 3, 2016. |
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3. |
Record on the books of the new corporation the following transactions for the fiscal period ended June 30, 2017: |
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Jul. |
3 |
2016 |
Jones and Smith each invested $500,000 additional cash in the corporation and were issued 10,000 common shares each. |
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Jul. |
5 |
2016 |
An additional 5,000 common shares were issued to numerous individuals for $1,000,000 cash. |
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June |
30 |
2017 |
JSS Corporation earned $400,000 income before income taxes, all in cash. The corporate income tax rate is 20%. |
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June |
30 |
2017 |
JSS Corporation declared a $1 dividend per common share. |
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4. |
Prepare the statement of changes in equity for JSS Corporation at its first period ended June 30, 2017. Assume there are no other transactions. |
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