1/1/ 2015 ABC received $300,000 in cash for issuing 10,000 shares of $9.00 par c

Question

1/1/ 2015 ABC received $300,000 in cash for issuing 10,000 shares of $9.00 par common stock. ABC received $600,000 cash for issuing 2000 shares of $200/par preferred stock. ABC purchased 15% of CDE stock for $25,000 cash. ABC is not intending to sell it anytime in the future and definitely not in 2016. The value of the stock at the 12/31/2015 was $24,000. CDE paid ABC $1,000 in dividends ABC purchased (cash) DEF debt for $10,800 (10,000 face, 10%, 5 year) that it intends to hold until maturity. Interest is paid annually on 1 /1. Market rate is 8%. Use the effective interest rate to amortize. Bond value at 12/31/15 was $10,500. ABC purchased GHI 5 year bonds that it is not sure if it will sell or hold until maturity for $25,000 cash. 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 salyage During the year (2015) ABC receives a refundable deposit for $100,000 to sell widgets to WTH Company in 2/2016 ABC purchases $40,000 (at a cost of $1.00 per unit) of inventory on credit ABC enters into an agreement to sell 50.000 widgets to ASAP Company for $400,000. They deliver half the widgets. ABC receives $200,000 in cash during the current year and the remaining $200,000 will be paid to ABC in January of 2016. Only half the sale will have basis. The credit portion of the sale will not be considered revenues for tax purposes until the cash is received Prior to delivery, ABC purchases (credi) $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 February of 2015. The services are delivered in November 2015. The cash is received in November. ABC pays in cash: a tax non deductible fine of $10,000; salaries of $20,000; rent of $2,000. Tax 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 holders and to its preferred sharcholders. Payment is not until 1/2/2016 Prepare Journal Entries (including closing entries). Income Statement and Balance Sheet (irn good form) for 2015

Explanation / Answer

Date AccountTitle Debit Credit 2015 1-Jan Cash 300000 Common stock(10000*9) 90000 APIC-Common stock(300000-90000) 210000 Cash 600000 Preferred stock(2000*200) 400000 APIC-Preferred stock(600000-400000) 200000 CDE stock-AFS 25000 Cash 25000 31-Dec Unrealised holding loss--CDE AFS -stock(25000-24000) 1000 CDE stock-AFS 1000 Cash 1000 Dividend Income 1000 DEF 5 Yr.debt(HTM) 10000 Premium on DEF Debt 800 Cash 10800 31-Dec Interest Receivable(10000*10%) 1000 Interest Income 864 Premium on DEF Debt 136 (as per Amortsn.Table) GHI 5-Year bonds(AFS) 20000 Premium on GHI Bonds 5000 Cash 25000 31-Dec Interest Receivable(20000*10%) 2000 Interest Income 1000 Premium on GHI Bonds(5000/5) 1000 (St.line amortsn. Of premium paid)) GHI 5-Year bonds(AFS) 500 Unrealised holding gain-GHI Bonds(24500-24000) 500 Equipment 200000 Accounts Payable 200000 Cash 100000 Unearned Revenue 100000 Inventory(40000*1) 40000 Accounts Payable 40000 Cash 200000 Accounts receivable 200000 Sales revenue 400000 Inventory(40000*2) 80000 Accounts Payable 80000 Cash 500000 FYI services 500000 Tax Non-deductible fine 10000 Salaries expense 20000 Rent expense 2000 Cash 32000 Depreciation 65000 Accumulated Depreciation 65000 Retained Earnings 10000 Common stock dividends payable 5000 Preferred dividends payable 5000 2393300 2393300 Effective interest rate amortisation of DEF debt -premium paid Year FV*10% Previous BV*8% Currently Amortised To be amortised Debt balance BV of Debt 0 800 10000 10800 1 1000 864 136 664 10000 10664 2 1000 853 147 517 10000 10517 3 1000 841 159 358 10000 10358 4 1000 829 171 187 10000 10187 5 1000 815 185 2 10000 10002 5000 4202 798 LEDGER ACCOUNTS Net Balances Date AccountTitle Debit Credit Debit Credit Accounts Payable 200000 Accounts Payable 40000 Accounts Payable 80000 320000 Accounts receivable 200000 200000 Accumulated Depreciation 65000 65000 1-Jan APIC-Common stock(300000-90000) 210000 210000 1-Jan APIC-Preferred stock(600000-400000) 200000 200000 1-Jan Cash 300000 1-Jan Cash 600000 1-Jan Cash 25000 31-Dec Cash 1000 Cash 10800 Cash 25000 Cash 100000 Cash 200000 Cash 500000 Cash 32000 1608200 1-Jan CDE stock-AFS 25000 31-Dec CDE stock-AFS 1000 24000 Common stock dividends payable 5000 5000 1-Jan Common stock(10000*9) 90000 90000 DEF 5 Yr.debt(HTM) 10000 10000 Depreciation 65000 65000 31-Dec Dividend Income 1000 1000 Equipment 200000 200000 FYI services 500000 500000 GHI 5-Year bonds(AFS) 20000 GHI 5-Year bonds(AFS) 500 20500 Interest Income 864 Interest Income 1000 1864 31-Dec Interest Receivable(10000*10%) 1000 31-Dec Interest Receivable(20000*10%) 2000 3000 Inventory(40000*1) 40000 Inventory(40000*2) 80000 120000 Preferred dividends payable 5000 5000 1-Jan Preferred stock(2000*200) 400000 400000 Premium on DEF Debt 800 Premium on DEF Debt 136 664 Premium on GHI Bonds 5000 Premium on GHI Bonds(5000/5) 1000 4000 Rent expense 2000 2000 Retained Earnings 10000 10000 Salaries expense 20000 20000 Sales revenue 400000 400000 Tax Non-deductible fine 10000 10000 Unearned Revenue 100000 100000 Unrealised holding gain-GHI Bonds(24500-24000) 500 500 31-Dec Unrealised holding loss--CDE AFS -stock(25000-24000) 1000 1000 2393300 2393300 2298364 2298364 Trial Balance as at Dec.31,2015 Cash 1608200 Accounts receivable 200000 Inventory(40000*1) 120000 Interest Receivable(20000*10%) 3000 Equipment 200000 Accumulated Depreciation 65000 CDE stock-AFS 24000 Unrealised holding loss--CDE AFS -stock(25000-24000) 1000 DEF 5 Yr.debt(HTM) 10000 Premium on DEF Debt 664 GHI 5-Year bonds(AFS) 20500 Premium on GHI Bonds 4000 Unrealised holding gain-GHI Bonds(24500-24000) 500 Accounts Payable 320000 Unearned Revenue 100000 Common stock dividends payable 5000 Preferred dividends payable 5000 Common stock(10000*9) 90000 APIC-Common stock(300000-90000) 210000 Preferred stock(2000*200) 400000 APIC-Preferred stock(600000-400000) 200000 Retained Earnings 10000 Sales revenue 400000 FYI services 500000 Depreciation 65000 Rent expense 2000 Salaries expense 20000 Tax Non-deductible fine 10000 Interest Income 1864 Dividend Income 1000 Totals 2298364 2298364 Income statement Sales revenue 400000 FYI services 500000 Less: Operating expenses: Depreciation 65000 Rent expense 2000 Salaries expense 20000 Tax Non-deductible fine 10000 97000 Operating Income 803000 Add: Interest Income 1864 Dividend Income 1000 Income before tax 805864 Tax at 40%* (805864+10000-200000) 246346 Net income before tax 559518 Balance Sheet as at Dec. 31, 2015 Assets Current Assets Cash 1608200 Accounts receivable 200000 Inventory 120000 Interest Receivable 3000 Total current assets 1931200 Fixed assets Equipment 200000 Less: Accumulated Depreciation -65000 Net fixed assets 135000 Investments CDE stock (AFS) 24000 DEF 5 Yr.debt(HTM) 10000 Add: Premium on DEF Debt 664 10664 GHI 5-Year bonds(AFS) 20500 Add: Premium on GHI Bonds 4000 24500 Total Investments 59164 Total Assets 2125364 Liabilities & Stockholders' equity Liabilities Current Liabilities Accounts Payable 320000 Unearned Revenue 100000 Income tax payable 246346 Common stock dividends payable 5000 Preferred dividends payable 5000 Total current Liabilities 676346 Stockholders'equity Common stock(10000shares *$ 9 Par ) 90000 APIC-Common stock 210000 300000 Preferred stock(2000 shares * $ 200 Par ) 400000 APIC-Preferred stock 200000 600000 Retained earnings(559518-10000) 549518 Other comprehensive Income: Unrealised holding gain-GHI Bonds 500 Unrealised holding loss--CDE AFS -stock -1000 -500 Total stockholders' Equity 1449018 Liabilities & Stockholders' equity 2125364

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