Time Traveler Magazine completed the following transactions during 2016:

• Oct 31: Sold one-year subscriptions, collecting cash of $1,750, plus HST of 13%.
• Dec 31: Remitted (paid) HST to Canada Revenue Agency (CRA).
• Dec 31: Made the necessary adjustment at year-end.

1. Journalize these transactions and then report any liability on the company's balance sheet on December 31^st.

Question 7.2

During its first year of operations, Keene Limited had sales of $76,500. The company offers a 2-year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of sales with an additional 1.5% in the second year. During the current year, the company spent $1,200 on warranty repairs.

1. make all journal entries related to the warranty for the current year.
2. How will the warranty liability be reported on the company's year-end balance sheet?

Question 7.3

On January 31, 2016, Muscle Sports Cars issued 10-year, 4% bonds with a face value of $100,000. The bonds were issued at 94 and pay interest on January 31 and June 30. Muscle amortizes their bonds by the straight-line method.

1. Record: (a) the issuance of the bonds on January 31, (b) the semi-annual interest payment and discount amortization on June 30, and (c) the interest accrual and discount amortization on December 31.

Question 7.4

On June 30, 2016, the market interest rate was 7%. Starship Enterprises issues $500,000 of 8%, 20-year bonds at 110.625. The bonds pay interest on June 30 and December 31. Starship amortizes bonds by the effective-interest method.

1. Record issuance of the bonds on June 30, 2016, the payment of interest on December 31, 2016, and the semi-annual interest payment on June 30, 2017.

Question 7.5

Alliance Agreement Corporation is considering two plans for raising $2,500,000 to expand its current operations. The first plan involves the sale of $2,500,000, 8%, 10-year bonds sold at face value. The second plan involves selling 50,000 common shares at $50 each. Alliance Agreement Corporation currently has outstanding 200,000 shares of stock and a net income of $900,000. Either plan is expected to generate an additional income of $400,000 before interest and taxes. The income tax rate is 30%.

1. Calculate earnings per share for both plans.

Question 7.6

Loki Corporation earned a net income of $90,000 during the year ended December 31, 2016. On December 15, Loki had declared the annual cash dividend on its $0.35 preferred shares (5,000 shares issued for $80,000) and a $0.40 per share cash dividend on its common shares (20,000 shares issued for $60,000). Loki then paid the dividends on January 4, 2017.

1. Journalize the following for Loki Corporation:

• Declaring the cash dividends on December 15, 2016.
• Paying the cash dividends on January 4, 2017.

1. Did Retained Earnings increase or decrease during 2016? If so, by how much?

Question 7.7

IMA Believer Corp's balance sheet reported the following shareholders' equity as of December 31, 2016:

	Beginning of the Year	End of the Year
Current assets	$62,000	$82,000
Current liabilities	25,000	55,000
Plant and equipment	300,000	350,000
Long-term liabilities	50,000	75,000
Common shareholders' equity	125,000	225,000
Preferred shareholders' equity	60,000	85,000

Share Capital:
Preferred shares, $100 stated value; $5 cumulative, 10,000 shares authorized, 10,000 issued	$1,000,000
Common shares 200,000 shares authorized, 50,000 shares issued	1,500,000
Total share capital	$2,500,000
Retained earnings	500,000
Total shareholders' equity	$3,000,000

1. Assuming there are 3 years' dividends in arrears (including that of the current year), determine (1) preferred equity and (2) book value per share of common shares.

Question 7.8

Settlers of Catan Co is authorized to issue an unlimited number of common shares and 10,000 preferred shares. During its first year, the business completed the following share issuance transactions:

• July 19: Issued 10,000 common shares for cash of $6.50 per share.
• Oct 3: Issued 500, $1.50 preferred shares for $50,000 cash.
• Oct 11: Received inventory valued at $11,000 and equipment with fair value of $8,500 for 3,300 common shares.

1. Journalize the transactions. Explanations are not required.
2. Make the shareholders' equity section of Settlers of Catan Co's balance sheet. The ending balance of Retained Earnings is a deficit of $42,000.

Question 7.9

1. Given the following information for Victory Stables, calculate their return on assets and equity and comment on the use of these ratios (why would we use them? what do they tell us?).

Net income	$50,000
Interest expense	8,500
Income tax expense	15,250
Preferred dividends	2,500

	Beginning of the Year	End of the Year
Current assets	$62,000	$82,000
Current liabilities	25,000	55,000
Plant and equipment	300,000	350,000
Long-term liabilities	50,000	75,000
Common shareholders' equity	125,000	225,000
Preferred shareholders' equity	60,000	85,000

Question 7.10

Multigrain Health Foods Inc. is authorized to issue 5,000,000 common shares. In its initial public offering during 2010, Multigrain issued 500,000 common shares for $7.00 per share. Over the next year, Multigrain's share price increased and the company issued 400,000 more shares at an average price of $8.50.

During the next seven years, from 2010 to 2016, Multigrain earned a net income of $920,000. They declared and paid cash dividends of $140,000. A 10% stock dividend was distributed to the shareholders in 2016 on the shares outstanding. The market price was $8.00 per share when the stock dividend was distributed. On December 31, 2016, the company has total assets of $14,500,000 and total liabilities of $6,820,000.

1. Show the computation of Multigrain's total shareholders' equity at December 31, 2016.
2. Present a detailed computation of each element of shareholder's equity.

Answer rating: 100% (QA)

Answer Question 71 Time Traveler Magazine Oct 31Cash 1975Subscription Revenue 1750HST Payable 225 Dec 31HST Payable 225Cash 225Adjustment 1750 of 13 2... View the full answer