Question

On 1/1/2015 ABC received $300,000 in cash for issuing 10,000 shares of $9.000 par common stock. ABC received $600,000 cash for issuing 2000 shares of 200/par preferred stock.

ABC purchased 15% of CDC stock for $25,000 cash. ABC is not intending to sell it anytime in the future and definatelly not in 2016. The value of the stock at the 12/31/20015 was $24,000. CDE paid ABC $1000 in dividends.

ABC purchased (cash) DEF debt for $10,800. (10,000 face, 10%, 5year) that intends to hold until maturity. Interest is paid annually on 1/1. Market rate is 8%. Use effective interest rate to amortize. Bond value at 12/31/2015 was 10,500.

ABC purchased GHJ 5 year bond that is not sure if it will sell or hold until maturity for $25,000. Face of the note is $20,000. It pays 10% interest annually(1/1). fair value of the bond at year-end was $24,500. Straight line

ABC purchases 2 widget producing machines at a total cost of $200,000 on credit. The book life of the asset is 5 years. No salvage.

Durning the year 2015: ABC receives a refundable deposit for $100,000 to sell widgets to WTH company in 2/2016. Purchases $40,000(at cost of $1.00 per unit)of inventory on credit. ABC enters into agreement to sell 50,000 widgets to ASAP Company for $400,000. They deliver half of the widgets. ABC receives $200,000 in cash durning the current year and the remaining $200,000 will be paid in 2016. The credit portion of the sale will not be consider revenues for tax purposes until the cash is received. Prior to delivery, ABC purchases (credit) 40,000 of inventory-cost $2.00/unit. ABC uses LIFO. ABC enters into an agreement to provide FYI services in November of 2015 for $500,000. The agreements are signed in November 2015. The cash is received in November. ABC pays in cash: a tax-non decuctible fineof $10,000, salaries of $20,000, rent $2000. The depreciation for the year is $65,000. The tax rate is 40%. ABC declares $10,000 of dividends, $5,000 each to its common stock and its preferred. Payment is not until 2016. Prepare all journal entries (including closing, Income statement and Balance Sheet.

Answer 1

Journal Entries			Dr	Cr
1)	Cash/ Bank Dr		300000
	Share Capital Cr			90000
	Securities Premium Cr			210000
2)	Cash/ Bank Dr		600000
	Preference Share capital Cr			400000
	Securities Premium Cr			200000
3)	Investment in CDC Dr		25000
	Cash/ Bank Cr			25000
4)	Cash/ Bank Dr		1000
	Dividend Cr			1000
5)	Investment in Debt Dr		10800
	Cash/ Bank Cr			10800
6)	Cash/ Bank Dr		1000
	Interest Income			840
	Investment in Debt			160
7)	Investment in Bond		25000
	Cash/ Bank Cr			25000
8)	Cash/ Bank Dr		2000
	Interest Income			1000
	Investment in Bond			1000
9)	Machinery A/c Dr		200000
	Accounts Payable			200000
10)	Depreciation Dr		65000
	Accumulated depreciation			65000
11)	Cash/ Bank		100000
	Refundable deposit			100000
12)	Purchases A/c Dr		40000
	Accounts Payable			40000
13)	Cash/Bank		200000
	Sales			200000
14)	Purchases A/c Dr		80000
	Accounts Payable			80000
15)	Cash/Bank		500000
	FYI Service income			500000
16)	Fine A/c Dr		10000
	Salaries A/c Dr		20000
	Rent/ Ac Dr		2000
	Cash/ Bank			32000
17)	Dividend		10000
	Dividend Payable			10000

Profit & Loss
Expenses	Amt		Income	Amt
Depreciation	65000		Dividend	1000
Purchases	120000		Interest Income	1840
Fine	10000		Sales	200000
Salaries	20000		FYI Service income	500000
Rent/ Ac	2000
Dividend	9000
Net Profit	476840
	702840			702840

Asset	Amt		Libilities	Amt
Cash/ Bank	1611200		Share Capital Cr	90000
Investment in CDC	25000		Securities Premium Cr	410000
Investment in Debt	10640		Preference Share capital	400000
Investment in Bond	25000		Account Payable	320000
Machinery	200000		Accumulated depreciation	65000
			Dividend Payable	10000
			Refundable deposit	100000
			Net profit	476840
	1871840			1871840