The Tusquittee Company is a retail company that began operations on October 1, 2024, when it incorporated in the state of North Carolina. The Tusquittee Company is authorized to issue 100,000 shares of $1 par value common stock and 50,000 shares of 5%, $50 par value preferred stock. The company sells a product that includes a one-year warranty and records estimated warranty payable each month. Customers are charged a 6% state sales tax. The company uses a perpetual inventory system. There are three employees who are paid a monthly salary on the last day of the month.
Following is the chart of accounts for The Tusquittee Company. As a new business, all beginning balances are $0.

The Tusquittee Company completed the following transactions during the last quarter of 2024, its first year of operations:

Requirements 1. In preparation for recording the transactions, prepare:

a. An amortization schedule for the first three months of the mortgage payable issued on October 1. Round interest calculations to the nearest dollar.

b. Payroll registers for October, November, and December. All employees worked October 1 through December 31 and are subject to the following FICA taxes: OASDI: 6.2% on first $132,900 earned; Medicare: 1.45% up to $200,000, 2.35% on earnings above $200,000. Additional payroll information includes:

c. Calculations for employer payroll taxes liabilities for October, November, and December: OASDI: 6.2% on first $132,900 earned; Medicare: 1.45%; SUTA:
5.4% on first $7,000 earned; FUTA: 0.6% on first $7,000 earned.
2. Record the transactions in the general journal. Omit explanations.
3. Post to the general ledger.
4. Record adjusting entries for the three-month period ended December 31, 2024:

a. Depreciation on the Building, straight-line, 40 years, no residual value.

b. Store Fixtures, straight-line, 20 years, no residual value.

c. Accrued interest expense on the note payable for the store fixtures.

d. Accrued interest expense on the mortgage payable.

e. Accrued income tax expense of $36,000.
5. Post adjusting entries and prepare an adjusted trial balance.
6. Prepare a multi-step income statement and statement of retained earnings for the quarter ended December 31, 2024. Prepare a classified balance sheet as of December 31, 2024. Assume that $13,840 of the mortgage payable is due within the next year.
7. Evaluate the company’s success for the first quarter of operations by calculating the following ratios. The market price of the common stock is $25 on December 31, 2024. Round to two decimal places.

a. Times interest earned

b. Debt to equity

c. Earnings per share

d. Price/earnings ratio

e. Rate of return on common stock

8. The Tusquittee Company wants to expand and is considering options for raising
additional cash. The company estimates net income before the expansion of
$250,000 in 2025 and that the expansion will provide additional operating income
of $75,000 in 2025. The company intends to sell the shares of treasury stock, so
use issued shares for the analysis rather than current shares outstanding. Compare
these options, assuming a 21% income tax rate:
Plan 1: Issue 10,000 additional shares of common stock for $20 per share
Plan 2: Issue $200,000 in 20-year, 12% bonds payable.
Which option will contribute more net income in 2025? Which option provides the
highest EPS?

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Cash Merchandise Inventory Land Building Store Fixtures Accumulated Depreciation Accounts Payable Employee Income Taxes Payable FICA-OASDI Taxes Payable FICA-Medicare Taxes Payable The Tusquittee Company Chart of Accounts Employee Health Insurance Payable Federal Unemployment Taxes Payable State Unemployment Taxes Payable Income Tax Payable Sales Tax Payable Estimated Warranty Payable Interest Payable Dividends Payable-Common Notes Payable Mortgages Payable Common Stock-$1 Par Value Paid-In Capital in Excess of Par-Common Paid-In Capital from Treasury Stock Transactions Retained Earnings Treasury Stock-Common Cash Dividends Sales Revenue Cost of Goods Sold Salaries Expense Payroll Tax Expense Utilities Expense Depreciation Expense Warranty Expense Income Tax Expense Interest Expense