Question

Harry and Ron formed Granger Company on January 1, 2013. Each contributed $200,000 in exchange for 10,000 shares of Common Stock with a par value of $1. The following are transactions for the month of January, the first month of operations.

Company acquired 400 acres of land in South Dakota at a cost of $500 per acre, paying in full.

Company established a line of credit with Dakota National Bank in the amount of $500,000 using the land as collateral.

Purchased supplies for $3,500 cash

Paid for January’s equipment rental, cash $50,000.

Sold timber from the land for $75,000.

Signed a 1 year lease on a 2,000 sq. ft. office, paying $2,800 for the month.

Sold large rocks to a landscaping customer, receiving half of the $15,000 in cash.

Paid $3,000 for fuel and oil used in the equipment.

Sold excess topsoil to a developer, 20 dump truck loads at $100 per load, cash.

Paid employees for the month, $12,000.

ABC Sign Company installed no trespassing signs and company signage at a cost of $1,500.

Received and paid invoice for insurance premiums for months of January-March, $15,000

Received invoice for 2,300 for fuel and oil used in the equipment.

On the last day of the month purchased 2 pickup trucks from a local dealer for $25,000 each, Dakota National Bank provided the loan with a rate of 2.49%, 12 months.

Signed contract to purchase an additional 250 acres of land at a cost of $600 per acre.

Accounts Listing:

Cash                      Accounts Receivable                                       Prepaid Insurance                            Trucks

Land                      Accounts Payable                                             Line of Credit Payable                    Note Payable

Common Stock Additional Paid in Capital                              Revenue                                              Advertising Exp

Supplies Exp       Equipment Rental Exp                                    Office Lease Exp                               Fuel/Oil Exp

Insurance Exp    Wages Exp

Prepare the Income Statement for the month of January, using proper form, calculate EPS.

Answer 1

	Working Notes: (rough entries made for the transactions)
		Debit	Credit
1	Common stock		20000	20000 shares of $1 each
	Additional paid in capital		380000	(400000-(10000*2*$1)
	Cash	400000
2	Land	200000		(400 acres @ $500per acre)			(land is used as collateral for credit)
	Cash		200000
3	supplies expense	3500
	cash		3500
4	equipment rental expense	50000
	cash		50000
5	cash	75000
	Revenue - sale of timber		75000
6	office lease expense	2800		(for 2k sft space)
	cash		2800
7	Accounts Receivable	7500
	Cash	7500
	Revenue- Sale of rock		15000
8	Fuel /oil expense	2300		(invoice recd for $2300)
	Advance for fuel	700
	cash		3000
9	cash	2000		(20 dumploads of topsoil sold @$100)
	Revenue- sale of soil		2000
10	Wages Expense	12000
	Cash		12000
11	Advt expenses	1500
	Accounts payable		1500	(signage installed by ABC co,)
12	Insurance expense	5000
	Prepaid insurance	10000		(prepaid for Feb and march)
	cash		15000
13	Pickup trucks (2 nos)	50000
	2.49% notes payable		50000
	Note: for signing the contract to buy land, no entry is required.
	Income Statement: (for January)
	(of Granger Company for the month of January)
	Sales Revenue:	$	$
	Revenue - sale of timber	75000
	Revenue- Sale of rock	15000
	Revenue- sale of soil	2000
	Gross Revenue	-----------	92000
	Less: Operating Expenses:
	Wages Expense	12000
	Fuel /oil expense	2300
	supplies expense	3500
	equipment rental expense	50000
	Insurance expense	5000
	office lease expense	2800
	Advt expenses	1500
		-----------	77100
	Net Operating Income		14900	(92000-77100)
	Number of Equity shares		20000
	EPS $		0.745	($14900/20000)