Question

2. C. Prepare a balance sheet in report form as of December 31, Year 1. You are not required to present the details of Preferred and Common Stock (i.e., number of shares authorized, issued and outstanding). • Refer to the Chart of Accounts for exact wording of account titles. • Refer to the Labels and Amount Descriptions for exact wording of text entries. • “Less” , “Deduct”, “Add” and colons will appear automatically. • Available-for-sale investments should be reported as a single asset on the balance sheet, regardless of how many accounts exist in the ledger for such assets. • Recall that current assets are to be reported in order of liquidity. Available-for-sale investments are considered to be more liquid that accounts receivable. • Report fixed assets and paid-in capital accounts in account-number order. • Omit the description of bonds and stocks (i.e., percentage rates, due date, number of shares, etc.) • Enter all amounts as positive numbers, with one exception: If an unrealized loss has occurred, it must be reported as a negative amount on the balance sheet.

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 investments 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 886,800

-Preferred 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)

Answer 1

INCOME STATEMENT
Particulars	Notes	Amount	Amount
Sales Revenue
Sales			5,254,000
Less: Sales Return			-
Net Sales Revenue			$     5,254,000.00
Cost of Goods Sold			$ 3,700,000.00
GROSS PROFIT			$     1,554,000.00
Operating Expenses
Advertising expense		$150,000
Delivery expense		30,000
Depreciation expense-office buildings and equipment		30,000
Depreciation expense-store buildings and equipment		100,000
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 commissions		185,000
Sales salaries expense		385,000
Store supplies expense		21,000	$1,152,500
OPERATING PROFIT (EBIT)			$         401,500.00
Non Operating Income
Dividend revenue		4,500
Gain on sale of investments		4,980
Income from Pinkberry Co. investment		76,800
Interest revenue		2,720
Interest expense		-21,000	$           68,000.00
EARNING BEFORE TAX (EBT)			$         469,500.00
Income Tax			140,500
INCOME FROM CONTINUING OPERATIONS (PAT)			$         329,000.00
INCOME FROM DISCONTINUING OPERATIONS (Net of Tax)
NET INCOME			$         329,000.00

Retain earnings statement
Particulars	Retained Earnings	Unrealised Gain & Losses	Other Reserves	Total
Balance at Beginning	$            9,319,725.00
Issue of share capital
Income for the year	$                329,000.00
Pref Dividends	$                100,000.00
Dividend	$                155,120.00
			**
Balance at Closing	$            9,393,605.00

Balance Sheet
Particulars	Amount	Amount
ASSETS
Current Assets
Cash and Cash Equivalents		$        246,000.00
Available for Sale	$        260,130.00
less: Valuation allowance for available-for-sale investments	$             6,500.00	$        253,630.00
Accounts Receivable	$        545,000.00
less: Allowance for doubtful accounts	$             8,450.00	$        536,550.00
Inventory		$        778,000.00
Interest Receivables		$             1,125.00
Prepaid expenses		$          27,400.00
TOTAL		$    1,842,705.00
Non-Current Assets
Store building and equipment	$ 12,560,000.00
less: Accumulated Depreciation	$    4,126,000.00	$    8,434,000.00
Office Buildings and Equipment	$    4,320,000.00
less: Accumulated Depreciation	$    1,580,000.00	$    2,740,000.00
Investment in Pinkberry Co.		$    1,009,300.00
Investment in Dream Inc. bonds		$          90,000.00
Intangible Assets - Goodwill		$        500,000.00
TOTAL		$ 12,773,300.00
TOTAL ASSETS		$ 14,616,005.00
LIABILITIES & EQUITY
LIABILITIES
Current Liabilities
Accounts Payable		$        194,300.00
Income Tax Payable		$          44,000.00
TOTAL		$        238,300.00
Long Term Liabilities
Bond Payable		$        500,000.00
Premium on Bonds Payable		$          19,000.00
TOTAL		$        519,000.00
TOTAL LIABILITIES		$        757,300.00
EQUITY
Preferred Stock	$    1,600,000.00
Paid-in Capital in Excess of Par-Preferred Stock	$        150,000.00	$    1,750,000.00
Common Stock	$    2,000,000.00
Paid-in Capital in Excess of Par-Common Stock	$        886,800.00	$    2,886,800.00
Paid-in capital from sale of treasury stock		$          13,000.00
Retained Earnings	$    9,393,605.00
Unrealized Gain (Loss) on Available-for-Sale Investments	$          (6,500.00)	$    9,387,105.00
Les: Treasury Stock		$        178,200.00
TOTAL EQUITY		$ 13,858,705.00
TOTAL LIABILITIES & EQUITY		$ 14,616,005.00