As this is an application problem, APA format is not required. However, ALL math work must be shown, where applicable. Single numerical answers for amounts that need to be calculated will NOT be accepted. The work may be completed in Word or Excel, but each part of the Comprehensive Problem should be clearly identified.

The Tusquitte Company is a retail company that began operations on October 1, 2018, when it incorporated in the state of North Carolina. The Tusquitte Company is authorized to issue 100,000 shares of $1 per value common stock and 50,000 shares of 5%, $50 per 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 sale tax. The company uses a perpetual inventory system. There are three employees that are paid a monthly salary on the last day of the month. Followings is the chart of accounts for The Tusquitte Company. As a new business, all beginning balances are $0.

The Tusquitte Company Chart Accounts

Cash Dividends Payable Common

Merchandise Inventory Notes Payable

Land Mortgages Payable

Building Common Stock - $1 per Value

Store Fixtures Paid-In Capital in Excess of Par-Common

Accumulated Depreciation Paid-In Capital from Treasury Stock Transaction

Accounts Payable Retained Earnings

Employee Income Taxes Payable Treasury Stock Common

FICA - OASDI Taxes Payable Cash Dividends

FICA - Medicare Taxes Payable Sales Revenue

Employee Health Insurance Payable Cost of Goods Sold

Federal Unemployment Taxes Payable Salaries Expense

State Unemployment Taxes Payable Payroll Tax Expense

Income Tax Payable Utilities Expense

Sales Tax Payable Depreciation Expense

Estimated Warranty Payable Warranty Expense

Interest Payable Income Tax Expense

Interest Expense

The Tusquitte Company completed the following transactions during the last quarter of 2018, its first year of operations:

Oct 1 Issued 25,000 shares of $1 par value common stock for cash of $10 per share.

1 Issued a $200,000, 10-year, 8% mortgage payable for land with an existing store building. Mortgage payments of $2,425 are due on the first day of each month, beginning November 1. The assets had the following market values: Land, $40,000; Building, $160,000.

1 Issued a one-year, 10% note payable for $10,000 for store fixtures. The principal and interest are due October 1, 2019.

3 Purchased merchandise inventory on account from Top Rate for $125,000, terms n/30.

15 Paid $160 for utilities

31 Recorded cash sales for the month of $185,000 plus sales tax of 6%. The cost of the goods sold was $110,000 and estimated warranty payable was 8%

31 Recorded October payroll and paid employees.

31 Accrued employer payroll taxes for October

Nov 1 Paid the first mortgage payment

3 Paid Top Rate for the merchandise inventory purchased on October 3

10 Purchased merchandise inventory on account from Top Rate for $150,000, terms n/30.

12 Purchased 500 shares of treasury stock for $15 per share

15 Paid all liabilities associated with the October 31 payroll

15 Remitted (paid) sales tax from October sales to the state of North Carolina

16 Paid $6,000 to satisfy warranty claims

17 Declared cash dividends of $1 per outstanding share of common stock

18 Paid $245 for utilities

27 Paid the cash dividend

30 Recorded cash sales for the month of $140,000 plus sales tax of 6%. The cost of the goods sold was $84,000 and estimated warranty payable was 8%

30 Recorded November payroll and paid employees

30 Accrued employer payroll taxes for November

Dec 1. Paid the second mortgage payment

10 Paid Top Rate for the merchandise inventory purchased on November 10

12 Paid $7,500 to satisfy warranty claims

15 Sold 300 shares of treasury stock for $20 per share

15 Paid all liabilities associated with the November 30 payroll

15 Remitted (paid) sales tax from November sales to the state of North Carolina.

18 Paid $220 for utilities

19 Purchased merchandise inventory on account from Top Rate for $90,000, terms n/30

31 Recorded cash sales for the month of $210,000 plus sales tax of 6%. The cost of the goods sold was $126,000 and estimated warranty payable was 8%

31 Recorded December payroll and paid employees

31 Accrued employer payroll taxes for December 7, 2017

Requirements

1. In preparation for recording the transactions, prepare:

a. An amortization schedule for the first 3 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 the first $118,500 earned; Medicare: 1.45% up to $200,000, 2.35% on earnings above $200,000. Additional payroll information includes:

Employee Monthly Salary Federal Income Tax Health Insurance

Kate Jones $6,000 $1,800 $300

Mary Smith 5,000 1,000 300

Sherry Martin 3,000 450 300

c. Calculations for employer payroll taxes liabilities for October, November and December: OASDI: 6.2% on the first $118,500 earned; Medicare: 1.45%; SUTA: 5.4% on the first $7,000 earned; FUTA: 0.6% on the 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, 2018:

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

b. Depreciation on 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 trail balance

6. Prepare a multi-step income statement and statement of retained earnings for the quarter ended December 31, 2018. Prepare classified balance sheet as of December 31, 2018. Assume that $13,840 of the mortgage payable is due within the next year

7. Evaluate the companys success for the first quarter of operations by calculating the following ratios. The market price of the common stock is $25 on December 31, 2018. Round to two decimals 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 Tusquitte Company wants to expand and is considering options for raising additional cash. The company estimates net income before the expansion of $250,000 in 2019 and that expansion will provide additional operating income of $75,000 in 2019. 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 30% income tax:

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 2019? Which option provides the highest EPS?