Reference no: EM13973167

B&L Landscapes, Inc. Mini Practice

Bill Graham started his career mowing lawns for neighbors while he was in junior high school. Bill worked summers for the local golf course while he was in high school and after he graduated, he started his own lawn care business, Bill's Lawn Care. In addition to lawn care, he also sells two types of fertilizer. Bill is ready to expand his business and wants to add sprinkler systems to his product offering. Larry Miller has an established sprinkler system business and they have agreed to merge their two businesses together. They considered the partnership form of business but have decided to incorporate. You are taking an accounting class at the local community college and have been helping Bill keep the accounting records for his business. He has asked you to stay on and establish and maintain the accounting records for the new company, B&L Landscapes, Inc.

Bill and Larry have hired an attorney and filed the incorporation paperwork with the state of Colorado. In the articles of incorporation, they are authorized to issue 150,000 shares of $1 par value common stock and 5,000 shares of $100 par value, 5%, non-cumulative, non-participating preferred stock. The new corporation will be created on July 1, 2014. The fair value of the assets and liabilities of both companies are as follows:

Account

Bill's Lawn Care
Cash$12,500
Accounts Receivable 500
Prepaid Insurance 500
Inventory 1,000
Land 8,000
Building 25,000
Equipment 7,500
Accounts Payable 5,000
Notes Payable (due 4/30/2024) 45,000

Larry's Sprinkler Systems
Cash$10,000
Accounts Receivable 3,000
Prepaid Insurance 1,000
Inventory 5,000
Equipment 11,000
Accounts Payable 5,000

Bill and Larry have decided that they will each receive 1 share of common stock for every dollar of working capital (assets less liabilities) they contribute to the new company. You may assume that all the assets and liabilities listed above will be part of the new company. Additionally, they issue stock as follows:

Jul 1Issued 30 shares of preferred stock for $100 per share cash to Bill's father.
Jul 1Issued 20 shares of preferred stock for $100 per share cash to Larry's mother.

Required:

1. Using the chart of accounts provided below, and the Excel template provided with this assignment, prepare journal entries, in good form, to record the creation of B&L Landscapes, Inc. and the issuance of stock. Use July 1 for the creation journal entries. Start with Page 1 of the General Journal. Explanations are optional.

2. Prepare a classified balance sheet for B&L Landscapes, Inc. for July 1, 2014.

3. During the first year of operations, B&L Inc. earned net income of $22,500. They also declared a $2,000 dividend on June 10, 2015 payable on June 30, 2015. Prepare an allocation of the dividend to each class of stock.

4. Record the journal entries for the dividend declaration and payment on Page 2 of the General Journal. Explanations are optional.

5. Prepare the Stockholders' Equity section of the balance sheet for June 30, 2015.