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Return Completed Assignments to: Robert Miller Distance Education Question 1 [25 points] Callaho Inc. began a very lucrative consulting operation on June 1, 2014. They are authorized to issue 500,000 shares of $5.00 cumulative preferred shares. They are also authorized to issue 650,000 common shares. a. June 11 : 13,000 common shares were issued in exchange for land valued at $35,000. The shares were actively trading on this date at $3.00 per share. b. June 18 : 9,000 of the common shares were issued for a total of $45,000 cash. c. June 19 : Gave the corporation’s promoters 7,000 common shares for their services in organizing the corporation.The directors valued the services at $21,000. d. June 23 : 8,000 of the preferred shares were issued for a total of $112,000 cash. e. June 25 : Issued 7,000 preferred shares at $14.00 per share for cash. f. June 30 : In addition to the declaration of the annual dividend on the preferred shares, dividends of $58,000 were declared on the common shares today. Required: Prepare journal entries for the above transactions. Question 2 [25 points] The accounts for Gulf Corp. reported the equity account balances shown in the table below on December 31, 2014: Preferred shares, $4 cumulative, unlimited shares authorized 0 Common shares, unlimited shares authorized, 46,000 shares issued and outstanding 138,000 Retained Earnings 270,000 In 2015 Gulf Corp. had the following transactions affecting shareholders and the statement of changes in equity accounts: a. February 24 : A 25% share dividend was declared when the market value was $20.00 per share, to be paid on March 7. b. March 7 : Date of distribution regarding the 25% share dividend. c. March 27 : Issued 9,000 preferred shares at $13.00 per share for cash. d. April 25 : The directors declared a total cash dividend of $93,500 payable on May 10 to the May 5 shareholders of record. e. May 10 : The cash dividend declared on April 25 was paid. f. December 31 : Closed the $280,000 credit balance in the Income Summary account. g. December 31 : Closed the dividend accounts. Required: 1) Prepare general journal entries to record the transactions. 2) Prepare the equity section of the balance sheet as of the close of business on December 31, 2015. Gulf Corp. Equity Section of Balance Sheet December 31, 2015 Contributed capital: 9,000 Preferred Shares,shares issued and outstanding 57,500 Common Shares,shares issued and outstanding Total contributed capital Retained earnings Total equity Question 3 [25 points] Vision Consulting Inc. intends to raise $1,000,000 to purchase buildings to use as rental properties. Two options are available: • Plan 1 : Issue $1,000,000 of 5%, 6-year bonds, or • Plan 2 : Issue 5,000 common shares at $200 per share. The buildings are expected to generate rental income before interest and tax of $750,000. Vision Consulting Inc.’s tax rate is 15%. The projected adjusted trial balance at December 31, 2014, one year after the expansion under each of Plan 1 and Plan 2, is shown below. Account Balance Balance Plan 1 Plan 2 Accumulated Depreciation, Building 2,050 2,050 Bonds Payable 1,000,000 0 Building 1,000,000 1,000,000 Cash 84,500 184,500 Common Shares 7,900 1,007,900 Consulting Revenue Earned 27,100 27,100 Depreciation Expense, Building 2,050 2,050 Income Taxes Expense ??? ??? Income Taxes Payable ??? ??? Interest Expense 465,300 365,300 Interest Receivable 143,200 143,200 Preferred Shares 6,900 6,900 Rent Earned 750,000 750,000 Rent Payable 2,200 2,200 Rent Receivable 26,050 26,050 Retained Earnings 112,700 112,700 Supplies Expense 113,550 113,550 Utilities Expense 74,200 74,200 Required: Prepare a single-step income statement for 2014(showing income before tax and income tax expense separately) and a classified balance sheet at December 31, 2014 assuming a. Plan 1, and then b) Plan 2. Question 4 [25 points] X-cell Inc. showed the following adjusted trial balance at its year-end, January 31, 2014. Assume that X-cell Inc.’s tax rate is 25% and that it is accrued when calculated at year end. The ABC Inc. bonds investment is intended to be held until it is due in 2024. The Investment in Star Inc. is an investment in an associate. Account Balance Accounts Payable 228,000 Accounts Receivable 118,000 Accumulated Amortization, Copyright 12,500 Accumulated Amortization, Patents 63,500 Accumulated Depreciation, Furniture 40,000 Allowance for Doubtful Accounts 500 Amortization Expense, Copyright 12,000 Amortization Expense, Patents 17,500 Cash 50,000 Cash Dividends 32,000 (1) Common Shares 48,500 (2) Copyright 60,500 Delivery Expense 20,000 Depreciation Expense, Furniture 11,000 Earnings from Investment 41,000 Furniture 319,500 Interest Earned 31,000 Investment in ABC Inc. bonds 56,000 Investment in Star Inc. common shares 83,000 Land 124,000 Patents 135,500 Preferred Shares 74,000 Prepaid Rent 30,000 Rent Earned 70,500 Rent Expense 99,500 Rent Payable 295,000 Retained Earnings 74,500 Unearned Rent 189,500 1 $9,600 of the $32,000 total dividends declared for the current accounting period relate to preferred shares with the remainder to common shares. 2 $9,700 of common shares were issued during the year ended January 31, 2014. Required: a) Prepare X-cell Inc.’s income statement (showing both income before tax and income tax expense separately) for the year ended January 31. b) Prepare X-cell Inc.’s statement of changes in equity for the year ended January 31. c) Prepare X-cell Inc.’s classified balance sheet at January 31.
