Southern Exposure Ltd begins operations on January 2

2016 During #301

Southern Exposure Ltd. begins operations on January 2, 2016. During the year, the following
transactions affect shareholders’ equity:1. Southern Exposure’s articles of incorporation
authorize the issuance of 1 million common shares, and the issuance of 100,000 preferred
shares, which pay an annual dividend of $2 per share.2. A total of 240,000 common shares are
issued for $5 a share.3. A total of 15,000 preferred shares are issued for $14 per share.4. The
full annual dividend on the preferred shares is declared.5. The dividend on the preferred shares
is paid.6. A dividend of $0.10 per share is declared on the common shares but is not yet paid.7.
The company has net income of $150,000 for the year. (Assume sales of $750,000 and total
operating expenses of $600,000.)8. The dividends on the common shares are paid.9. The
closing entry for the dividends declared accounts is prepared.Required:a. Prepare journal
entries to record the above transactions, including the closing entries for net income and
dividends declared mentioned in items 3 through 6 above.b. Prepare the shareholders’ equity
section of the statement of financial position as at December 31, 2016.c. Why would an investor
choose to purchase the common shares rather than the preferred shares? Or vice versa?View
Solution:
Southern Exposure Ltd begins operations on January 2 2016 During

ANSWER
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