Question

In: Accounting

On January 1, 2018, the general ledger of Grand Finale Fireworks includes the following account balances:...

On January 1, 2018, the general ledger of Grand Finale Fireworks includes the following account balances:

  Accounts Debit Credit
  Cash $ 43,500
  Accounts Receivable 46,100
  Supplies 8,300
  Equipment 72,000
  Accumulated Depreciation $ 9,800
  Accounts Payable 15,400
  Common Stock, $1 par value 18,000
  Additional Paid-in Capital 88,000
  Retained Earnings 38,700
       Totals $ 169,900 $ 169,900
During January 2018, the following transactions occur:
January 2 Issue an additional 2,000 shares of $1 par value common stock for $40,000.
January 9 Provide services to customers on account, $16,800.
January 10 Purchase additional supplies on account, $5,700.
January 12 Repurchase 1,100 shares of treasury stock for $21 per share.
January 15 Pay cash on accounts payable, $17,300.
January 21 Provide services to customers for cash, $49,900.
January 22 Receive cash on accounts receivable, $17,400.
January 29

Declare a cash dividend of $0.30 per share to all shares outstanding on January 29. The dividend is payable on February 15.

(Hint: Grand Finale Fireworks had 18,000 shares outstanding on January 1, 2018 and dividends are not paid on treasury stock.)

January 30 Reissue 900 shares of treasury stock for $23 per share.
January 31 Pay cash for salaries during January, $42,800.


The following information is available on January 31, 2018.

  1. Unpaid utilities for the month of January are $7,000.
  2. Supplies at the end of January total $5,900.
  3. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a service life of three years and a residual value of $10,800.
  4. Accrued income taxes at the end of January are $2,800.

1. Prepare a general journal for the above transactions and include the adjusting entry for utilities, supplies, depreciation, and income tax. Also include closing entries for revenue, expenses, and dividends.

2. Prepare an income statement and balance sheet as well.

3. and when finished complete the following analysis:

Analyze the following for Grand Finale Fireworks:
(a) Calculate the return on equity for the month of January. If the average return on equity for the industry for January is 2.50%, is the company more or less profitable than other companies in the same industry?
The return on equity is: %
Is the company more or less profitable than other companies?
(b) How many shares of common stock are outstanding as of January 31, 2018?
The number of common shares outstanding as of January 31, 2018 is
(c) Calculate earnings per share for the month of January. (Hint: To calculate average shares of common stock outstanding take the beginning shares outstanding plus the ending shares outstanding and divide the total by 2.) If earnings per share was $2.40 last year (i.e., an average of $0.20 per month), is earnings per share for January 2018 better or worse than last year’s average?
Earnings per share is:
Is earnings per share for January 2018 better or worse than last year’s average?

Solutions

Expert Solution

Prepare journal entries as follows:

Date General Journal Debit Credit
Jan. 02 Cash [2,000 shares × $20] $40,000
Common stock [2,000 shares × $1] $2,000
Additional paid-in capital $38,000
Jan. 09 Accounts receivable $16,800
Service revenue $16,800
Jan. 10 Supplies $5,700
Accounts payable $5,700
Jan. 12 Treasury stock [1,100 shares × $21] $23,100
Cash $23,100
Jan. 15 Accounts payable $17,300
Cash $17,300
Jan. 21 Cash $49,900
Service revenue $49,900
Jan. 22 Cash $17,400
Accounts receivable $17,400
Jan. 29 Dividends $5,670
Dividends payable $5,670
[18,000 + 2,000 - 1100] × $0.30
Jan. 30 Cash [900 shares × $23] $20,700
Treasury stock [900 shares × $21] $18,900
Additional paid-in capital $1,800
Jan. 31 Salaries Expense $42,800
Cash $42,800

______________________________________________________________

Prepare Adjusting entries as follows:

Date General Journal Debit Credit
Jan. 31 Utilities Expense $7,000
Utilities payable $7,000
Jan. 31 Supplies Expense $8,100
Supplies [$8300 + $5700 - $5900] $8,100
Jan. 31 Depreciation Expense $1,700
Accumulated depreciation $1,700
[$72000 - $10800] ÷ 3 years] × 1/12
Jan. 31 Income tax Expense $2,800
Income tax payable $2,800

_______________________________________________________________________

Working notes:

Prepare Adjusted Trial Balance:

GRAND FINALE FIREWORKS
Adjusted Trial Balance
January. 31, 2018
Accounts Debit Credit
Cash $88,300
Accounts Receivable $45,500
Supplies $5,900
Equipment $72,000
Accumulated depreciation [$9800 + $1700] $11,500
Accounts payable [$15400 +$5700 - $17300] $3,800
Common stock $20,000
Additional paid-in capital $127,800
Retained earnings $38,700
Service revenue [$16800 + $49900] $66,700
Treasury Stock $4,200
Dividends $5,670
Dividends payable $5,670
Salaries Expense $42,800
Utilities Expense $7,000
Supplies Expense $8,100
Depreciation Expense $1,700
Income tax expense $2,800
Utilities payable $7,000
Income tax payable $2,800
$283,970 $283,970

________________________________________________________

Income Statement
Revenue:
Service revenue $66,700
Less: Expenses:
Salaries Expense $42,800
Utilities Expense $7,000
Supplies Expense $8,100
Depreciation Expense $1,700
Income tax expense $2,800 $62,400
Net Income $4,300

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