Question

2016 Info:

On January 1, we are authorized to issue 100,000 shares of our 1.00 common stock.  We issued 50,000 shares for $80/share; and issued a $100,000 bond for either 1) $96,000 or 2) 104,000.  The market rate was 9% and the stated rate was 10%.  The bond is a 10 year bond that pays interest on 1/1 of each year.     

Inventory includes the following:  Beginning balance of $0.  On January 3 we purchased  $22,000 (1000 units at $22) worth of inventory.  1,000 units of inventory was purchased on June 1 for $23/unit; and finally a 1,000 units on December 1 for $24/unit.  2,000 units were sold for $300/unit on December 20^th($120,000 in cash was received and the remaining will be collected in 2017). The rate used for determining uncollectible has been set at 10% of gross credit sales. The company uses perpetual FIFO.

Equipment1 was purchased at the beginning of the year for $50,000 cash.  No salvage/residual value.  Straight-line depreciation is used over a 10-year life.  Equipment2 was also purchased at the beginning of the year for 550,000 (no salvage) 10 year life.  We decided to use SL method.  The equipment2 required a $5,000 repair by year-end.  Equipment3 was purchased on 6/1 for 100,000 (20,000 salvage value). We decided to use SYD as a depreciation method.  At 12/31 it required a capital improvements of $40,000 which we signed a note to pay in 9 months.  

Equipment1 was purchased at the beginning of the year for $50,000 cash.  No salvage/residual value.  Straight-line depreciation is used over a 10-year life.  Equipment2 was also purchased at the beginning of the year for 550,000 (no salvage) 10 year life.  We decided to use SL method.  The equipment2 required a $5,000 repair by year-end.  Equipment3 was purchased on 6/1 for 100,000 (20,000 salvage value). We decided to use SYD as a depreciation method.  At 12/31 it required a capital improvements of $40,000 which we signed a note to pay in 9 months.  

Building was purchased on 4/1 for $900,000 cash.  Salvage/residual value of $100,000 exists.  Straight-line is used over a 20-year life.

We needed funds, so we signed a note on 7/1 for $100,000.  We agreed to pay back the note at the end of the next year.  Interest rate is10%, payable 12/31.  The note is short-term.

On 10/1 we started to create a patent.  Costs of salaries related to the creation of the patent were $50,000 ($5,000 of this remained unpaid by year-end).  This patent has an expected life of 10 years. We purchased a second patent for $80,000 with an expected live of 8 years.  

On 6/30 we issued another 25,000 shares of our stock for $70/share.

On 10/1 we sold equipment1 (that was purchased at the beginning of the year).  At the time of the sale, the asset was on the books at a historical cost of $50,000.   We sold it for $40,000 (we received cash).

On 11/1 we purchased $100,000 of equity of another company.  It paid us $2,000 in dividends by year-end.  

Dividends paid during the year were $79,500. The equity of the other company was worth $60,000 at year-end 2016.  The tax rate is 21%

--> Please prepare journal entries.

Answer 1

Date	Account Titles	Debit	Credit
2016		$	$
Jan 1	Cash	4,000,000
	Common Stock		50,000
	Paid-in Capital in Excess of Par: Common Stock		3,950,000
Jan 1	Cash	104,000
	Premium on Bonds Payable		4,000
	Bonds Payable		100,000
Jan 1	Equipment 1	50,000
	Cash		50,000
Jan 1	Equipment 2	550,000
	Cash		550,000
Jan 3	Inventory	22,000
	Cash		22,000
Apr 1	Building	900,000
	Cash		900,000
June 1	Equipment 3	100,000
	Cash		100,000
June 1	Inventory	23,000
	Cash		23,000
June 30	Cash	1,750,000
	Common Stock		25,000
	Paid-in Capital in Excess of Par: Common Stock		1,725,000
July 1	Cash	100,000
	Notes Payable		100,000
Oct 1	Salaries Expense	45,000
	Cash		45,000
???	Patents	80,000
	Cash		80,000
Oct 10	Depreciation Expense ( 50,000 / 10 ) * 9 / 12	3,750
	Accumulated Depreciation : Equipment 1		3,750
Oct 10	Cash	40,000
	Accumulated Depreciation : Equipment 1	3,750
	Loss on Sale of Equipment	6,250
	Equipment 1		50,000
Nov 1	Equity Investment	100,000
	Cash		100,000
Dec 1	Inventory	24,000
	Cash		24,000
Dec 20	Cash	120,000
	Accounts Receivable	480,000
	Sales		600,000
Dec 20	Cost of Goods Sold	45,000
	Inventory		45,000
Dec 31	Repairs Expense	5,000
	Cash		5,000
Dec 31	Equipment 3	40,000
	Note Payable		40,000
Dec 31	Dividends	79,500
	Cash		79,500
Dec 31	Cash	2,000
	Dividend Revenue		2,000
Dec 31	Unrealized Holding Loss on Equity Investments	40,000
	Fair Value Adjustment		40,000
Dec 31	Bad Debt Expense ( 480,000 x 10 % )	48,000
	Allowance for Doubtful Accounts		48,000
Dec 31	Depreciation Expense	85,000
	Accumulated Depreciation: Equipment 2		55,000
	Accumulated Depreciation: Building		30,000
Dec 31	Interest Expense	9,600
	Premium on Bonds Payable	400
	Interest Payable		10,000
Dec 31	Salaries Expense	5,000
	Salaries Payable		5,000