Ty Koon, Harry Pitts and Eileen Dover are the founders of Sharpe Incorporated. T
ID: 2584590 • Letter: T
Question
Ty Koon, Harry Pitts and Eileen Dover are the founders of Sharpe Incorporated. The charter of the corporation authorized 500,000 shares of $5 par common stock, and 50,000 shares of $40 par, 5%, preferred stock. The company began business on January 1 of the current year.
Selected transactions completed by Sharpe Incorporated during the fiscal year-ending December 31, 2013, are as follows:
Jan 1 Issued 16,000 shares of $5 par common stock at $18, receiving cash.
Jan 1 Issued 7,200 shares of $40 par preferred 5% stock at $42 for cash. The dividends are payable semi-annually.
Jan 31 Purchased a two-year insurance policy for $34,080.
Feb 1 Purchased equipment for $290,000 in exchange for paying $50,000, issuing a $50,000, 180-day, 5% note payable, and issuing 9,500 shares of common stock.
May 1 Purchased 1,200 shares of the company’s own common stock at $22 per share.
June 1 Declared a cash dividend at the stated amount on the preferred stock.
June 30 Paid the cash dividend on the preferred stock.
July 1 Issued $1,000,000 of 9-year, 8% bonds with interest payable semiannually. The amount of cash received was $1,092,880.
July 30 Paid the amount due on the note payable signed on February 1.
Aug 1 Sold 450 shares of treasury common stock purchased on May 1 for $26 per share.
Oct 1 Purchased 30,000 of the 100,000 outstanding shares of Precision Corporation for $5.10 per share, plus a $125 commission to the stockbroker.
Oct 16 Sold 250 shares of treasury common stock purchased on May 1 for $20 per share.
Nov. 1 Borrowed $36,000 from Second Bank by issuing a 90-day, 7% note.
Dec 15 Declared a cash dividend at the stated amount to preferred stockholders and $.50 per share on the outstanding common shares. The date of record is December 30, and the dividend is payable January 15, 2014.
Dec 31 Record revenue for the year of $1,975,000, receiving $500,000 in cash with the remainder on account.
Dec 31 Record expenses for the year (one compound entry). All were paid in cash, except for $30,000 on account.
Rent $170,000
Utilities 13,200
Salaries 760,000
Payroll tax expense 45,600
Advertising 120,000
Medical insurance 32,000
Commissions 63,000
Legal and accounting 18,000
Miscellaneous 8,400
Dec. 31 Paid the semiannual interest and amortized the premium on the bonds issued on July 1.
Dec. 31 Received a cash dividend from Precision Corporation of $0.10 per share.
Dec. 31 Precision Corporation reported earnings of $25,000 for the period from October 1 to December 31.
Adjusting Entries
(1) The employees’ accrued vacation pay at the end of the year was $26,000.
(2) Record depreciation on the equipment purchased on February 1, using the straight-line method. The equipment has an estimated 9-year useful life and an estimated residual value of $13,520.
(3) Record insurance expired on the policy purchased January 31.
(4) Record interest accrued on the note payable (November 1).
1). Write a Income Statement
Explanation / Answer
SHARPE INCORPORATED General journal for the year ended December31, 2013 Date Account title Debit credit 2013 Jan.1 Cash 288000 Common stock 80000 Additional paid in capital - common stock 208000 (To record issue of 16,000 shares of common stock for cash) Jan.1 Cash 302400 Prefered stock 288000 Additional paid in capital - preferred stock 14400 (To record issue of 7,200 shares of preferred stock for cash) Jan.31 Prepaid insurance 34080 Cash 34080 (To record purchase of 2-year insurance poilcy) Feb.1 Equipment 290000 Cash 50000 Note payable 50000 Common stock 47500 Additional paid in capital - common stock 142500 (To record purchase of equipment) May.1 Treasury stock 26400 Cash 26400 (To record purchase of 1,200 shares of own stock) June.1 Preferred dividend 14400 Dividends payable 14400 (To record declaration of prefenrece dividend) June.30 Dividends payable 14400 Cash 14400 (To record payment of preferred dividend) July.1 Cash 1092880 Bonds payable 1000000 Premium on bond issue 92880 (To record issue of bonds ) July.30 Note payable 50000 Interest expense 1250 Cash 51250 (To record payment of amoount due on note payable) Aug.1 Cash 11700 Treasury stock 9900 Additional paid in capital - common stock 1800 (To record sale of 450 shares of treasury stock) Oct.1 Investment in Precision Corporation 153125 Cash 153125 (To record purchase of 35,000 shares of Precision Corp.) Oct.16 Cash 5000 Additional paid in capital - common stock 500 Treasury stock 5500 (To record sale of 250 shares of treasury stock) Nov.1 Cash 36000 90-day,7% Note payable 36000 (To record amount borrowed on note payable) Dec.15 Preferred dividend 14400 Common stock dividend 13000 Dividends payable 27400 (To record declaration of common stock and prefered dividend) Dec.31 Cash 500000 Accounts receivable 1475000 Sales revenue 1975000 (To recors service revenue for the year) Dec.31 Rent expense 170000 Utilities expense 132000 Salaries expense 760000 Payroll tax expense 45600 Advertising expense 120000 Medical insurance expense 32000 Commission expense 63000 Legal and accounting expense 18000 Miscellaneous expenses 8400 Accounts payable 30000 Cash 1319000 (To record expenses for the year) Dec.31 Interest expense 44840 Premium on bond issue 5160 Cash 40000 (To record payment of interest and amortization of premium on bonds) Dec.31 Cash 3000 Investment in Precision Corporation 3000 (To record cash dividend received from Precision Corp.) Dec.31 Investment in Precision Corporation 7500 Equity income from Precision Corporation 7500 (To record share of income of Precision Corp. For the year) Dec.31 Salaries expense 26000 Salaries and wages payable 26000 (To record vacation pay accrued for the year) Dec.31 Depreciation expense 30720 Accumulated depreciation 30720 (To record depreciation for the year) Dec.31 Insurance expense 17040 Insurance payable 17040 (To record insurance expense for the year) Dec.31 Interest expense 210 Interest payable 210 (To record interest expense on 7% note payable) Premium on bond issue 92880 Term 9 years Semi annual amortization amount 5160 Common stock outstanding First issue 16000 Treasury stock -1200 Equipment 9500 Reissue of treasury stock 450 Reissue of treasury stock 250 Depreciation expense Cost of equipment 290000 Residual value 13520 Depreciable value 276480 Life in years 9 Annual depreciation 30720 SHARPE INCORPORATED Income statement for the year ending December 31, 2013 Sales revenue 1975000 Rent expense 170000 Utilities expense 132000 Salaries expense 760000 Payroll tax expense 45600 Advertising expense 120000 Medical insurance expense 32000 Commission expense 63000 Legal and accounting expense 18000 Depreciation expense 30720 Miscellaneous expenses 8400 Insurance expense 17040 Total operating expense 1396760 Net operating income 578240 Interest expense 45050 Net income 533190
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