Question
Ironwood Corporation was authorized to issue 200,000 ordinary shares ($1 par) and 20,000 6% preference shares ($50 par). The following equity transactions occurred during 2025, its first year of operations.
| Date | Transaction |
|---|
| January 10 | Issued 40,000 ordinary shares for $5 cash per share. |
| February 20 | Issued 5,000 preference shares for $54 cash per share. |
| April 5 | Issued 3,000 ordinary shares in exchange for land with a fair value of $21,000. |
| July 1 | Purchased 4,000 of its own ordinary shares for the treasury at $6 per share. |
| September 15 | Reissued 1,500 treasury shares at $8 per share. |
| December 1 | Declared the full annual dividend on the preference shares and a $0.20 per share cash dividend on the outstanding ordinary shares, payable December 20. |
| December 20 | Paid the dividends declared on December 1. |
In addition, during the year Ironwood earned service revenue of $96,000 (all received in cash) and paid operating expenses of $61,500 in cash. These have already been journalized and posted — do not journalize them again, but include them in the trial balance.
Instructions:
- Journalize the seven equity transactions. (Use separate share premium accounts for ordinary, preference and treasury transactions, and record declared dividends in a Cash Dividends account.)
- Prepare a trial balance at December 31, 2025 (before closing entries).
Statements in this challenge
- Journal EntriesJournal Entry
- Trial BalanceTrial Balance
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — offsetting and presentation
A contra account carries the opposite normal balance to the account it reduces and is presented alongside it, not merged into it. The gross amount and the contra both stay on the books so the reader can see the carrying amount and how it was arrived at.
Common mistakes
- Writing the reduction directly against the asset and losing the gross figure.
- Reporting a contra account on the wrong side of the statement, or as a liability rather than a deduction from its asset.
- Treating accumulated depreciation as an expense — it is a cumulative balance, while depreciation expense is the period charge.
Further readingStraight-line depreciation and accumulated depreciation