4 A B C D E F G H 145 146 Razul took the proceeds from dissolving the partnership and purchased a corporation selling electrical parts used for large 147 production companies. He employs several people, but is looking to expand his operations further. In addition to expanding the sales of electrical parts, he also wants to start seling heating, ventilation and air conditioning (HVAC) parts and 148 machinery through a separate division of the company called "HVAC Parts & Machinery. Currently, Ratul owns all the 149 shares in the corporation. To raise the needed cash, he decides to offer common and preferred Shares for sale to investors starting in 2021. Relow is the balance sheet at the end of 2020 150 151 152 Holister Electric Inc. 153 Balance Sheet 154 As at December 31, 2020 155 Assets Liabilities 156 Cash $28,540 Accounts Payable $25,400 157 Accounts Receivable 21.900 Unearned Revenue 11,000 158 Prepaid Insurance 7,200 Bank Loan 28,500 159 Inventory 74,600 Total Liabilities 64,900 160 Property, Plan & Equipment 184,000 Shareholders' Equity 161 Accumulated Depreciation -30,000 Common Shares - 75,000 issued 75,000 162 Retained Earnings 146.340 163 Total Shareholder's Equity 221,340 164 Total Assets $286,240 Liabilities & Owner's Equity $285,240 165 166 At 2020, Raul has authorized 120,000 common shares and 11,000 preferred shares. The preferred shares will be cumulative 167 and pay $7 dividends. The 75,000 shares issued were issued to Rarul. He will maintain control of the company and sit on the 168 board of directors. 164 2 B C D E F G H 170 Transactions during 2021 171 172 a) On January 1, Holister purchased a strategic investment of 18,500 shares in Gregor inc. for $11 per share. This represents 28% of Gregor Inc.common shares. On December 31, Gregor Inc declares and pays a $80,000 dividend and reports a net 173 income of $340,000. Holister will use the equity method to record this investment 174 175 176 177 b1 On January 1, Razul has located a few private investors that wish to purchase shares in the new corporation. Some want common shares, while other are interested in preferred shares. Holister Electric Inc. issued 30,000 common shares for 178 $75,000 cash and issued 5.000 preferred shares for $20,000 cash. 179 180 181 182 con March 1, Holister Electric Inc. issued and sold $250,000, 5 year bonds with an interest rate of 7%. The market rate at 183 the time of issue was 8%. Any premium or discount on the bond is amortized using the effective interest rate method. Interest will be paid annually on February 28, The Present value of 1 and annuity of 1 of x for 6 periods are 0.5906 and 184 3.9927, respectively. Use a 4 decimal factor for the bond calculation 185 186 187 188 d) On April 1, the company has extra cash on hand and would like to invest it in short-term bonds issued by Gamma Ltd. The company bought 25, $1.500 short term (one-year) bonds at par on this date and intended to sell these bonds before 189 maturity. The interest rate on the bond is 7% payable annually at March 31. On December 31, 2021, each bond was trading 190 in the market at $1,750. On January 1, 2022, all bonds were sold for $45,000. 191 192 193 e) On luly 1, Halister purchased a $74,000, 5 year bond paying 10%. Interest is paid every 6 months on December 31 and 194 June 30. The company plans to hold onto the bond until it matures. 195 196 197 1) On November 23, the company purchased 3,000 shares of Daenerys Inc. at $26 per share for the purpose of trading. The 198 shares are less than 7% of the total shares of Daenerys Inc. and are a non-strategic investment. By December 31, the price 199 per share had gone up to $27 per share. 200 201 RI During 2021, Holister Electric Inc. has performed well, so the board of directors decided to pay dividends. On November 202 30, 2021, the company declared cash dividends of $90,000, which will be paid out on December 15, 2021. Use the cash 203 dividends method and close cash dividends at the end of the year. 204 fx 2 B D E F G H 205 Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the investments made 206 during the year, 2021. Also prepare adjustments at year end to accrue interest on the bond and to record change to any 207 applicable investments. 208 209 Date Account Title and Explanation DR CR 210 211 212 213 214 215 216 17 4 A B C D E F G H 145 146 Razul took the proceeds from dissolving the partnership and purchased a corporation selling electrical parts used for large 147 production companies. He employs several people, but is looking to expand his operations further. In addition to expanding the sales of electrical parts, he also wants to start seling heating, ventilation and air conditioning (HVAC) parts and 148 machinery through a separate division of the company called "HVAC Parts & Machinery. Currently, Ratul owns all the 149 shares in the corporation. To raise the needed cash, he decides to offer common and preferred Shares for sale to investors starting in 2021. Relow is the balance sheet at the end of 2020 150 151 152 Holister Electric Inc. 153 Balance Sheet 154 As at December 31, 2020 155 Assets Liabilities 156 Cash $28,540 Accounts Payable $25,400 157 Accounts Receivable 21.900 Unearned Revenue 11,000 158 Prepaid Insurance 7,200 Bank Loan 28,500 159 Inventory 74,600 Total Liabilities 64,900 160 Property, Plan & Equipment 184,000 Shareholders' Equity 161 Accumulated Depreciation -30,000 Common Shares - 75,000 issued 75,000 162 Retained Earnings 146.340 163 Total Shareholder's Equity 221,340 164 Total Assets $286,240 Liabilities & Owner's Equity $285,240 165 166 At 2020, Raul has authorized 120,000 common shares and 11,000 preferred shares. The preferred shares will be cumulative 167 and pay $7 dividends. The 75,000 shares issued were issued to Rarul. He will maintain control of the company and sit on the 168 board of directors. 164 2 B C D E F G H 170 Transactions during 2021 171 172 a) On January 1, Holister purchased a strategic investment of 18,500 shares in Gregor inc. for $11 per share. This represents 28% of Gregor Inc.common shares. On December 31, Gregor Inc declares and pays a $80,000 dividend and reports a net 173 income of $340,000. Holister will use the equity method to record this investment 174 175 176 177 b1 On January 1, Razul has located a few private investors that wish to purchase shares in the new corporation. Some want common shares, while other are interested in preferred shares. Holister Electric Inc. issued 30,000 common shares for 178 $75,000 cash and issued 5.000 preferred shares for $20,000 cash. 179 180 181 182 con March 1, Holister Electric Inc. issued and sold $250,000, 5 year bonds with an interest rate of 7%. The market rate at 183 the time of issue was 8%. Any premium or discount on the bond is amortized using the effective interest rate method. Interest will be paid annually on February 28, The Present value of 1 and annuity of 1 of x for 6 periods are 0.5906 and 184 3.9927, respectively. Use a 4 decimal factor for the bond calculation 185 186 187 188 d) On April 1, the company has extra cash on hand and would like to invest it in short-term bonds issued by Gamma Ltd. The company bought 25, $1.500 short term (one-year) bonds at par on this date and intended to sell these bonds before 189 maturity. The interest rate on the bond is 7% payable annually at March 31. On December 31, 2021, each bond was trading 190 in the market at $1,750. On January 1, 2022, all bonds were sold for $45,000. 191 192 193 e) On luly 1, Halister purchased a $74,000, 5 year bond paying 10%. Interest is paid every 6 months on December 31 and 194 June 30. The company plans to hold onto the bond until it matures. 195 196 197 1) On November 23, the company purchased 3,000 shares of Daenerys Inc. at $26 per share for the purpose of trading. The 198 shares are less than 7% of the total shares of Daenerys Inc. and are a non-strategic investment. By December 31, the price 199 per share had gone up to $27 per share. 200 201 RI During 2021, Holister Electric Inc. has performed well, so the board of directors decided to pay dividends. On November 202 30, 2021, the company declared cash dividends of $90,000, which will be paid out on December 15, 2021. Use the cash 203 dividends method and close cash dividends at the end of the year. 204 fx 2 B D E F G H 205 Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the investments made 206 during the year, 2021. Also prepare adjustments at year end to accrue interest on the bond and to record change to any 207 applicable investments. 208 209 Date Account Title and Explanation DR CR 210 211 212 213 214 215 216 17