Selected transactions completed by Delhome Products Inc. during

Selected transactions completed by Delhome Products Inc. during the fiscal year ending July 31, 2008, were as follows:

a. Issued 12,500 shares of $30 par common stock at $65, receiving cash.

b. Issued 10,000 shares of $125 par preferred 8% stock at $160, receiving cash.

c. Issued $15,000,000 of 10-year, 12% bonds at an effective interest rate of 10%, with interest payable semiannually. Use the present value tables in Appendix A to determine the bond proceeds. (Round to the nearest dollar.)

d. Declared a dividend of $0.25 per share on common stock and $2.50 per share on preferred stock. On the date of record, 125,000 shares of common stock were outstanding, no treasury shares were held, and 18,750 shares of preferred stock were outstanding.

e. Paid the cash dividends declared in (d).

f. Redeemed $500,000 of 8-year, 15% bonds at 101. The balance in the bond premium account is $6,150 after the payment of interest and amortization of premium have been recorded. (Record only the redemption of the bonds payable.)

g. Purchased 6,250 shares of treasury common stock at $62.50 per share.

h. Declared a 2% stock dividend on common stock and a $2.50 cash dividend per share on preferred stock. On the date of declaration, the market value of the common stock was $63.75 per share. On the date of record, 125,000 shares of common stock had been issued, 6,250 shares of treasury common stock were held, and 18,750 shares of preferred stock had been issued. (Round to the nearest dollar.)

i. Issued the stock certificates for the stock dividends declared in (h) and paid the cash dividends to the preferred stockholders.

j. Purchased $150,000 of Lewis Sports Inc. 10-year, 15% bonds, directly from the issuing company, for $145,500 plus accrued interest of $5,625.

k. Sold, at $72.50 per share, 3,750 shares of treasury common stock purchased in (g).

l. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization was determined using the straight-line method. (Round the amortization to the nearest dollar.)

m. Accrued interest for four months on the Lewis Sports Inc. bonds purchased in (j). Also recorded amortization of $120.


Instructions

1. Journalize the selected transactions.

2. After all of the transactions for the year ended July 31, 2008, had been posted (including the transactions recorded in (1) and all adjusting entries), the data below and on the following page were taken from the records of Delhome Products Inc.

a. Prepare a multiple-step income statement for the year ended July 31, 2008, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 125,000 and preferred dividends were $131,250. (Round earnings per share to the nearest cent.)

b. Prepare a retained earnings statement for the year ended July 31, 2008.

c. Prepare a balance sheet in report form as of July 31, 2008.

Income statement data:

Advertising expense ......................$ 150,000

Cost of merchandise sold ....................3,498,750

Delivery expense ...................... 27,000

Depreciation expense—office buildings and equipment ....... 25,000

Depreciation expense—store buildings and equipment ........ 90,000

Gain on redemption of bonds ................. 1,150

Income tax:

Applicable to continuing operations ............... 247,509

Applicable to loss from discontinued operations .......... 100,000

Applicable to gain from redemption of bonds ............ 150

Interest expense ...................... 778,266

Interest revenue ...................... 2,025

Loss from disposal of discontinued operations .......... 250,000

Loss from fixed asset impairment ............... $ 187,500

Miscellaneous administrative expenses ............. 7,500

Miscellaneous selling expenses ................ 13,750

Office rent expense ...................... 50,000

Office salaries expense .................... 170,000

Office supplies expense ................... 10,000

Restructuring charges .................... 93,750

Sales ............................ 6,300,000

Sales commissions ..................... 195,000

Sales salaries expense .................... 360,000

Store supplies expense ..................... 20,000

Retained earnings and balance sheet data:

Accounts payable ....................... 212,000

Accounts receivable ...................... 562,500

Accumulated depreciation—office buildings and equipment ...... 1,670,650

Accumulated depreciation—store buildings and equipment ..... 4,428,750

Allowance for doubtful accounts ................ 43,750

Bonds payable, 11%, due 2018 ................ 14,500,000

Cash ........................... 250,000

Common stock, $30 par (400,000 shares authorized;

124,875 shares outstanding) ................. 3,746,250

Deferred income tax payable (current portion, $17,500) ....... 51,375

Dividends:

Cash dividends for common stock ................ 122,815

Cash dividends for preferred stock .............. 187,500

Stock dividends for common stock .............. 151,406

Dividends payable ...................... 37,500

Employee termination obligation (current) ............ 81,250

Goodwill ........................ 540,000

Income tax payable .................... 40,000

Interest receivable ...................... 7,500

Investment in Lewis Sports Inc. bonds (long-term) ......... 145,620

Merchandise inventory (July 31, 2008), at lower of

cost (FIFO) or market ................... 850,000

Notes receivable ..................... 156,250

Office buildings and equipment ............... 7,412,500

Paid-in capital from sale of treasury stock ........... 37,500

Paid-in capital in excess of par—common stock .......... 700,000

Paid-in capital in excess of par—preferred stock ......... 300,000

Preferred 8% stock, $125 par (30,000 shares authorized;

18,750 shares issued) .................... 2,343,750

Premium on bonds payable ................. 1,769,722

Prepaid expenses ..................... 31,250

Retained earnings, August 1, 2007 .............. 2,302,970

Store buildings and equipment ................. 21,920,876

Treasury stock (2,500 shares of common stock at cost

of $62.50 per share) .................... 156,250


Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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