Micks Photographic Equipment began operations on January 1, 2014. During 2014, the company entered into the following
Question:
Mick’s Photographic Equipment began operations on January 1, 2014. During 2014, the company entered into the following transactions:
1. Issued 50,000 shares of $15 par value common stock for $30 per share in exchange for cash. Also issued, for cash, 1,000 shares of 10 percent, $100 par value preferred stock for $102 per share.
2. Purchased $750,000 of fixed assets in exchange for cash.
3. Issued twenty bonds, each with a face value of $1,000, at 146 (annual coupon rate = 16 percent and annual yield rate = 10 percent). The bonds pay interest semiannually on December 31 and June 30.
4. Purchased land in exchange for 1,000 shares of $15 par value common stock. The shares were selling for $40 per share at the time.
5. Purchased $2,000,000 of inventory on account. $1,075,000 was subsequently paid during 2014.
6. Sold $2,050,000 of merchandise in exchange for cash. The related inventory had cost $875,000.
7. Purchased a two-year insurance policy for $80,000.
8. Purchased short-term marketable securities for $250,000.
9. Sold $880,000 of merchandise on account. The related inventory had a cost of $490,000. $500,000 of the sales made on account were collected during the year.
10. Paid $500,000 in miscellaneous expenses (rent, utilities, and wages).
11. Declared, but did not pay, a $100,000 dividend.
12. Made the first interest payment on the bonds on December 31.
Adjusting entries include:
a. The fixed assets were purchased on January 1 and had an estimated useful life and salvage value of five years and $50,000, respectively. The company uses the straight-line depreciation method.
b. The company used one-fourth of the insurance policy during 2014.
c. The market value of the marketable securities on December 31 was $225,000.
d. As of December 31, the company had incurred, but had not yet paid, $75,000 in miscellaneous expenses.
e. The company estimates that 8 percent of credit sales will prove uncollectible.
f. The market value of the inventory was $5,000 less than the cost.
REQUIRED:
a. Prepare journal entries for each of the original and adjusting transactions. Establish T-accounts for each account. Post the entries to the T-accounts.
b. Prepare the necessary closing entries. Post these entries.
c. Prepare the income statement and balance sheet for Mick’s Photographic Equipment for the year ended December 31, 2014.
d. Prepare the statement of cash flows for Mick’s Photographic Equipment for the year ended December 31, 2014, using both the direct and indirect methods.
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... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... 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... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
Step by Step Answer:
a Original entries 1a Cash A 1500000 Common Stock SE 750000 Additional PaidIn Capital Common Stock SE 750000 Issued common stock 1b Cash A 102000 Preferred Stock SE 100000 Additional PaidIn Capital Pr...View the full answer
