Question

Lurch Company’s December 31, 2015, balance sheet follows:
During 2016, the following transactions occurred:
1. To avoid paying monthly rent of $ 5,000 on existing plant facilities, the company decided to buy a tract of land and construct a building of its own on it. On January 2, 2016, Lurch exchanged 6,000 shares of its common stock to acquire the land; the stock was selling for $ 25 per share. Construction of the building also began on January 2, 2016. At the time, Lurch borrowed funds by issuing a 1- year, $ 500,000 note at 12% to help finance the project. The principal and interest on the note are due January 3, 2017. Construction costs (paid in cash) that occurred evenly throughout the year totaled $ 700,000. The building was completed on December 30, 2016, and the move- in to the new building was to occur during the next week.
2. On January 2, 2016, Lurch exchanged its one existing machine plus $ 50,000 for a newer machine with a fair value of $ 430,000. The new machine is to be depreciated using straight- line depreciation based on an economic life of 5 years and a residual value of $ 55,000.
3. Lurch uses a FIFO perpetual inventory system. Lurch sold $ 350,000 of its inventory for $ 700,000 cash, paid for its beginning accounts payable, and purchased $ 480,000 of inventory on account during the year.
4. On July 31, 2016, Lurch declared and paid a $ 2.50 per share cash dividend to its shareholders.
5. Lurch is subject to a 30% income tax rate, and income taxes are accrued at year- end.
Required:
Prepare Lurch’s income statement and statement of retained earnings for the fiscal year ended December 31, 2016, and a balance sheet as of December 31, 2016. Show all supporting journal entries and computations made during 2016.


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  • CreatedOctober 05, 2015
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