You’ve 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 $ 33,000 Common stock, $10 par 68,000 Capital surplus (15,100) Retained earnings 172,000 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 $ 27,700 Capital from donated land 16,900 Treasury stock (400 common shares at cost) (5,600) Additional paid-in capital on preferred stock 2,000 Stock dividend (50%) (20,000) Prior period adjustment (net of income taxes) (10,100) Loss from fire (uninsured), 2018 (18,100) Property dividend declared (5,600) Cash dividends declared (23,300) Balance $ (36,100) 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 Hubbard’s shareholders’ equity accounts.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity

Section: Chapter Questions

Problem 5C: It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019...

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Question

You’ve 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	$ 33,000
Common stock, $10 par	68,000
Capital surplus	(15,100)
Retained earnings	172,000

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	$ 27,700
Capital from donated land	16,900
Treasury stock (400 common shares at cost)	(5,600)
Additional paid-in capital on preferred stock	2,000
Stock dividend (50%)	(20,000)
Prior period adjustment (net of income taxes)	(10,100)
Loss from fire (uninsured), 2018	(18,100)
Property dividend declared	(5,600)
Cash dividends declared	(23,300)
Balance	$ (36,100)

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 Hubbard’s shareholders’ equity accounts.

CHART OF ACCOUNTS

Hubbard Company

General 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

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

GENERAL JOURNAL

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

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