Reference no: EM133114926

Question - SHAREHOLDERS' EQUITY - The following transactions occurred during 2019, the first year of operations, for Music Musings Inc.

1. Issued 10,000 common shares and 2,000, $3, non-cumulative preferred shares for total proceeds of $135,000. Each common share is estimated to have a market value of $5 per share and each preferred share is estimated to be worth $50 per share.

2. Issued 4,000 common shares for $6.25 each.

3. Issued 1,000 preferred shares for land having a market value of $60,000. On the date of issuance, the preferred shares were trading in the market for $65 per share.

4. Issued 1,000 preferred shares for legal costs amounting to $55,000.

5. The company declared the annual cash dividend on the preferred shares and a 25 cent per share dividend on the common shares. Payment will be made in a month.

6. Music Musings Inc. repurchased 1,500 common shares for $4 per share.

7. The dividends declared in item 5 were paid.

8. The net income for the year ending December 31, 2019 was $300,000.

9. There is an unlimited number of shares authorized for both preferred and common stock.

Required -

1. Prepare journal entries for the above.

2. Prepare the shareholders' equity section of the balance sheet at December 31, 2019.

3. Calculate the return on equity for the year ending December 31, 2019. Comment on the ratio result.