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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Selected transactions completed by Equinox Products Inc. during the fiscal year ended

December 31. Year 1, were as follows:

a. Issued 15,000 shares of $20 par common stock at $30, receiving cash.

b. Issued 4.000 shares of $80 par preferred 5% stock at $100, receiving cash.

c. Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually.

d. Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock Mere outstanding, no treasury shares were held and 20,000 shares of preferred stock were outstanding.

e. Paid the cash dividends declared in (d).

f. Purchased 7,500 shares of Solstice Corp. at $40 per share plus a $150 brokerage commission. The investment is classified as an available-for-sale investment.

g. Purchased 8,000 shares of treasury common stock at $33 per share.

h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for $24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment.

i. Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record. 20.000 shares of preferred stock had been issued.

j. Paid the cash dividends to the preferred stockholders.

k. Received $27,500 dividend from Pinkberry Co. investment in (h).

l. Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directly from the Issuing company, at their face amount plus accrued interest of $375- The bonds are classified as a held to-maturity long-term investment.

m. Sold, at $38 per share. 2,600 shares of treasury common stock purchased in (g).

n. Received a dividend of $0.60 per share from the Solstice Corp. investment in (f).

o. Sold 1,000 shares of Solstice Corp. at $45, including commission.

p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method.

q. Accrued interest for three months on the Dream Inc. bonds purchased in (1).

r. Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income.

s. The fair value for Solstice Corp. stock was $39.02 per share on December 31, Year 1. The investment is adjusted to fair value, using a valuation allowance account. Assume that Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero.

Instructions

1. Journalize the selected transactions.

2. After all of the transactions for the year ended December 31, Year 1, had been posted including the transactions recorded in part (1) and all adjusting entries, the data that follows were taken from the records of Equinox Products Inc.

a. Prepare a multiple-step income statement for the year ended December 31, Year 1, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were $100,000. Round earnings per share to the nearest cent.

b. Prepare a retained earnings statement for the year ended December 31, Year 1.

c. Prepare a balance sheet in report form as of December 31, Year 1

images

(1)

To determine

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Statement of retained earnings: This statement reports the beginning retained earnings and all the changes which led to ending retained earnings. Net income from income statement is added to and dividends is deducted from beginning retained earnings to arrive at the end result, ending retained earnings.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors.

To journalize: The transactions of E Products for Year 1

Explanation

Journalize the transactions of E Products for Year 1.

Figure (1)

(2) (a)

To determine

To prepare: Income statement of E Products for the year ended December 31, Year 1

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