ZedCon Inc. intends to raise $10,000,000 for the purpose of expanding operations internationally. Two options are available:

? Plan 1: Issue $10,000,000 of 5% bonds payable due in 2030, or

? Plan 2: Issue 100,000 common shares at $100 per share.

The expansion is expected to generate additional annual profit before interest and tax of $800,000. ZedCon?s tax rate is 35%. The assumed adjusted trial balance at December 31, 2021, one year after the expansion under each of Plan 1 and Plan 2, is shown below:

Required

Preparation Component:

1. Prepare a single-step income statement for 2021 (showing salaries expense, depreciation expense, cost of goods sold, interest expense, and other expenses) and a classified balance sheet at December 31, 2021, assuming:

a. Plan 1, and then

b. Plan 2.

Analysis Component:

Which financing plan should ZedCon Inc. choose assuming its goal is to:

a. Maximize earnings per share, or

b. Maximize profit.

Explain your answers showing any relevant calculations (rounded to the nearest whole cent).

Transcribed Image Text:

Balance* Plan 1 Account Plan 2 Accounts payable. Accounts receivable. Accumulated depreciation, buildings. Accumulated depreciation, equipment.. Accumulated depreciation, international assets. 33,000 33,000 48,000 48,000 78,000 78,000 202,000 202,000 100,000 100,000 Additional profit as a result of expansion. Allowance for doubtful accounts. Bad debt expense Bonds payable Buildings.. 800,000 800,000 5,200 5,200 3,200 3,200 10,000,000 -0- 150,000 150,000 812,000 92,000 Cash. 312,000 Cash dividends 92,000 100 Cash over/short. 100 Common shares (1,000 shares issued and outstanding)*. Common shares (101,000 shares issued and outstanding)" Cost of goods sold.. Delivery expense Depreciation expense 100,000 10,100,000 48,000 48,000 700 700 127,000 127,000 31,000 Dividends payable. 31,000 273,000 Equipment. 273,000 Income tax expense Income tax payable Interest expense 506,100 6,100 Interest receivable. 300 300 Interest income. 800 800 International property, plant, and equipment assets. 10,000,000 10,000,000 Land. 32,000 32,000 32,000 Merchandise inventory. Mortgage payable ($14,000 due in 2022). 32,000 60,000 60,000 14,000 Notes receivable, due October 2025 14,000 Patent. 7,000 7,000 Petty cash. Rotained earnings. 800 800 25,600 25,600 Revenue.. 1,050,000 1,050,000 Salaries expense. 916,000 916,000 Sales 59,000 59,000 Sales discounts. 1,400 1,400 19,000 Unearned revenue.. 19,000