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Comprehensive Problem 4 Part 2: Note: You must complete part 1 before part 2. After all...
Comprehensive Problem 4
Part 2:
Note: You must complete part 1 before part 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.
| Income statement data: | |
| Advertising expense | $150,000 |
| Cost of merchandise sold | 3,700,000 |
| Delivery expense | 30,000 |
| Depreciation expense—office buildings and equipment | 30,000 |
| Depreciation expense—store buildings and equipment | 100,000 |
| Dividend revenue | 4,500 |
| Gain on sale of investment | 4,980 |
| Income from Pinkberry Co. investment | 76,800 |
| Income tax expense | 140,500 |
| Interest expense | 21,000 |
| Interest revenue | 2,720 |
| Miscellaneous administrative expense | 7,500 |
| Miscellaneous selling expense | 14,000 |
| Office rent expense | 50,000 |
| Office salaries expense | 170,000 |
| Office supplies expense | 10,000 |
| Sales | 5,254,000 |
| Sales commissions | 185,000 |
| Sales salaries expense | 385,000 |
| Store supplies expense | 21,000 |
| Retained earnings and balance sheet data: | |
| Accounts payable | $194,300 |
| Accounts receivable | 545,000 |
| Accumulated depreciation—office buildings and equipment | 1,580,000 |
| Accumulated depreciation—store buildings and equipment | 4,126,000 |
| Allowance for doubtful accounts | 8,450 |
| Available-for-sale investments (at cost) | 260,130 |
| Bonds payable, 5%, due 20Y2 | 500,000 |
| Cash | 246,000 |
| Common stock, $20 par (400,000 shares authorized; 100,000 shares issued, 94,600 outstanding) | 2,000,000 |
| Dividends: | |
| Cash dividends for common stock | 155,120 |
| Cash dividends for preferred stock | 100,000 |
| Goodwill | 500,000 |
| Income tax payable | 44,000 |
| Interest receivable | 1,125 |
| Investment in Pinkberry Co. stock (equity method) | 1,009,300 |
| Investment in Dream Inc. bonds (long term) | 90,000 |
| Merchandise inventory (December 31, Year 1), at lower of cost (FIFO) or market | 778,000 |
| Office buildings and equipment | 4,320,000 |
| Paid-in capital from sale of treasury stock | 13,000 |
| Excess of issue price over par—common stock | 886,800 |
| Excess of issue price over par—preferred stock | 150,000 |
| Preferred 5% stock, $80 par (30,000 shares authorized; 20,000 shares issued) | 1,600,000 |
| Premium on bonds payable | 19,000 |
| Prepaid expenses | 27,400 |
| Retained earnings, January 1, Year 1 | 9,319,725 |
| Store buildings and equipment | 12,560,000 |
| Treasury stock (5,400 shares of common stock at cost of $33 per share) | 178,200 |
| Unrealized gain (loss) on available-for-sale investments | (6,500) |
| Valuation allowance for available-for-sale investments | (6,500) |
On your own paper, in the working papers, or using a spreadsheet, prepare the following:
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.) Save your calculations and enter the requested amounts below.
b. Prepare a retained earnings statement for the year ended December 31, Year 1. Save your calculations and enter the requested amounts below.
c. Prepare a balance sheet in report form as of December 31, Year 1. Save your calculations and enter the requested amounts below.
If required, only use the minus sign to indicate loss before income tax, net loss, or a deficit balance in retained earnings.
| Gross profit | $ |
| Total selling expenses | $ |
| Total administrative expenses | $ |
| Total operating expenses | $ |
| Income from operations | $ |
| Net other expenses and income | $ |
| Income tax | $ |
| Net income | $ |
| Earnings per common share (rounded to the nearest cent) | $ |
| Retained earnings, January 1, Year 1 | $ |
| Total current assets | $ |
| Investment in Dream Inc. bonds | $ |
| Total property, plant, and equipment | $ |
| Total assets | $ |
| Total current liabilities | $ |
| Net long-term liabilities | $ |
| Total liabilities | $ |
| Total paid-in capital preferred 5% stock | $ |
| Total paid-in capital common stock, $20 par | $ |
| Total paid-in capital | $ |
| Retained earnings, December 31, Year 1 | $ |
| Total stockholders' equity | $ |
Solutions
Expert Solution
| Equinox Products Inc. | |||
| Income Statement | |||
| Sales=(A) | $ 52,54,000.00 | ||
| Cost of goods sold=(B) | $ 37,00,000.00 | ||
| Gross Profit=(C )=(A)-(B) | $ 15,54,000.00 | ||
| Operating Expenses | |||
| Selling Expenses: | |||
| Sales Salaries Expenses | $ 3,85,000.00 | ||
| Sales Commission | $ 1,85,000.00 | ||
| Advertisement Expenses | $ 1,50,000.00 | ||
| Depreciation Expense=Store Building | $ 1,00,000.00 | ||
| Delivery Expense | $ 30,000.00 | ||
| Store Supplies Expense | $ 21,000.00 | ||
| Miscellaneous Selling Expenses | $ 14,000.00 | $ 8,85,000.00 | |
| Administerative Expenses | |||
| Office Salaries Expenses | $ 1,70,000.00 | ||
| Office Rent Expense | $ 50,000.00 | ||
| Depreciation Expense-Office Building & Equipment | $ 30,000.00 | ||
| Office Supplies Expesne | $ 10,000.00 | ||
| Miscellaneous Administerative Expenses | $ 7,500.00 | $ 2,67,500.00 | |
| Total Operating Expenses=(D ) | $ 11,52,500.00 | ||
| Income From Operation=(E )=(C )-(D) | $ 4,01,500.00 | ||
| Other Expenses and Income | |||
| Dividend Revenue | $ 4,500.00 | ||
| Interest Revenue | $ 2,720.00 | ||
| Income from Pinkberry Co.-Investment | $ 76,800.00 | ||
| Gain on sale of Investment | $ 4,980.00 | ||
| Interest Expense=(F) | $ -21,000.00 | $ 68,000.00 | |
| Income before income tax=(G )=(E )+(F) | $ 4,69,500.00 | ||
| Income Tax=(H) | $ 1,40,500.00 | ||
| Net Income=(G )-(H) | $ 3,29,000.00 | ||
| Earning Per Share on Common Stock=(Net Income-Preferred dividendS)/Outstanding Common shares | |||
| Earning Per Share on Common Stock=($329000-$100000)=$229000/100000= | $ 2.29 | ||
| Equinox Company | |||
| Retained Earnings Statement | |||
| For the Year Ended December 31st | |||
| Beginning Retained Earning | $ 93,19,725.00 | ||
| Add: Net Income | $ 3,29,000.00 | ||
| Less: Cash Dividends | |||
| Common Stock | $ -1,55,120.00 | ||
| Preferred Stock | $ -1,00,000.00 | ||
| Ending Retained Earnings | $ 93,93,605.00 | ||
| Equinox Company | |||
| Balance Sheet | |||
| For the Year Ended December 31st | |||
| Current Assets: | |||
| Cash | $ 2,46,000.00 | ||
| Available for sale Investment less valution of sale allowance for available of sale investment=($260130-$6500) | $ 2,53,630.00 | ||
| Accounts Receivable less allowance for doubtful accounts=($545000-$8450) | $ 5,36,550.00 | ||
| Merchandise Inventory at lower of cost (FIFO) or market | $ 7,78,000.00 | ||
| Interest Receivable | $ 1,125.00 | ||
| Prepaid Expenses | $ 27,400.00 | ||
| Total Current Assets | $ 18,42,705.00 | ||
| Investments: | |||
| Investment at Pinkberry Co.Stock | $ 10,09,300.00 | ||
| Investment at Dream Inc.Bonds | $ 90,000.00 | $ 10,99,300.00 | |
| Property,Plant and Equipment | |||
| Store Building and Equipment | $ 1,25,60,000.00 | ||
| Less: Accumulated Depreciation | $ -41,26,000.00 | $ 84,34,000.00 | |
| Office Building and Euipment | $ 43,20,000.00 | ||
| Less: Accumulated Depreciation | $ -15,80,000.00 | $ 27,40,000.00 | |
| Total of Property,Plant and Equipment | $ 1,11,74,000.00 | ||
| Intangible Assets: | |||
| Goodwill | $ 5,00,000.00 | ||
| Total Assets | $ 1,46,16,005.00 | ||
| Liabilities | |||
| Current Liabilities | |||
| Accounts Payable | $ 1,94,300.00 | ||
| Income tax Payable | $ 44,000.00 | ||
| Total Current Liabilities | $ 2,38,300.00 | ||
| Long Term Liabilities | |||
| Bonds Payable 5% due 20Y2 | $ 5,00,000.00 | ||
| Add: Premium on Bonds Payable | $ 19,000.00 | $ 5,19,000.00 | |
| Total Liabilites | $ 7,57,300.00 | ||
| Stockholder's Equity | |||
| Paid in Capital | |||
| Preferred 5% stock,$80 par 30000 shares authorized ,20000 shares issued | $ 16,00,000.00 | ||
| Excess of issue price over par | $ 1,50,000.00 | ||
| Common Stock,$20 par(400000 shares authorized,100000 shares issued,94600 shares outstanding) | $ 20,00,000.00 | ||
| Excess of issue price over par | $ 8,86,800.00 | ||
| Total Paid in capital | $ 46,36,800.00 | ||
| Retained Earnings | $ 93,93,605.00 | ||
| Unrealized gain/loss on available for sale investment | $ -6,500.00 | ||
| Total | $ 1,40,23,905.00 | ||
| Less: Treasury common stock(5400 shares at cost)+Paid in capital on sale of treasury stock=(-$178200+$13000) | $ -1,65,200.00 | ||
| Total Stock holder's equity | $ 1,38,58,705.00 | ||
| Total Liabilites and Stockholder's Equity |
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