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Corvallis Canoe Company is a service-based company that rents canoes and kayaks for use on local lakes and rivers. The company was started by a Jack and June, who met in college while studying accounting. Because they both love the outdoors, they decided to begin a new business that would combine their love of outdoor activities with their business knowledge. Thus, Corvallis Canoe Company was born and began operations on November 1, 2018. After the first two months in operation, Corvallis Canoe Company had net income of $4,970. Shown here is their Balance Sheet as of December 31, 2018.

CORVALLIS CANOE COMPANY
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash		$ 12,125
Accounts Receivable		7,600
Office Supplies		165
Prepaid Rent		2,000
Total Current Assets			$ 21,890
Property, Plant, and Equipment:
Land		85,000
Building	$ 35,000
Less: Accu. Depr.Building	(500)	34,500
Canoes & Kayaks	12,000
Less: Accu. Depr.Canoes & Kayaks	(350)	11,650
Total Plant Assets			131,150
Total Assets			$ 153,040
Liabilities
Current Liabilities:
Accounts Payable		$ 3,050
Wages Payable		1,250
Utilities Payable		295
Telephone Payable		325
Unearned Revenue		350
Interest Payable		50
Total Current Liabilities			$ 5,320
Long-term Liabilities
Notes Payable			7,200
Total Liabilities			12,520
Stockholders Equity
Common Stock		136,000
Retained Earnings		4,520
Total Stockholders Equity			140,520
Total Liabilities and Stockholders Equity			$ 153,040

Jack and June are pleased with the growth of their company and have decided to invest its temporary excess cash in a brokerage account. The company had the following securities transactions in 2019:

Jul. 1	Purchased 8,000 shares in Adobe Outdoor Adventure Company for $3 per share. Corvallis Canoe does not have significant influence over Adobe.
7	Purchased 35% of the stock of Bison Backpacks consisting of 43,750 shares of stock (out of a total of 125,000 shares) for $5 per share. Corvallis Canoe does have significant influence over Bison.
10	Purchased a bond from Camelot Canoes with a face value of $80,000. Corvallis Canoe intends to hold the bond to maturity. The bond pays interest semiannually on June 30 and December 31.
Sep. 30	Received dividends of $0.15 per share from Adobe.
Nov. 1	Received dividends of $0.30 per share from Bison.
Dec. 31	Received an interest payment of $3,200 from Camelot Canoes.
31	Bison Backpacks reported net income of $30,000 for the year.
31	Adjusted the Adobe stock for a market value of $2.98 per share.

The effect on Corvallis Canoe Companys net income for the year for each of the three investments is as follows:

Calculations:

Cost of investments:

Formula: total cost = # of shares x price per share

	=	Number of shares		Price per share		Total cost
Adobe	=	8,000 shares		$3 per share	=	24,000
Bison	=	43,750 shares		$5 per share	=	218,750

Cash dividends:

Formula: total dividends = # of shares x dividend per share

Total dividends	=	Number of shares		Dividend per share
Adobe	=	8,000 shares		$0.15 per share	=	$1,200
Bison	=	43,750 shares		$0.30 per share	=	13,125

Share of net income:

Formula: revenue from investment = reported net income x percent ownership x # of months held

Revenue from investment	=	Reported Net income		Percent ownership Number of Months Held 12
Bison	=	$30,000		35% 6/12
	=	$5,250

Unrealized holding loss:

Formula: unrealized holding loss = total fair value - total cost

Unrealized holding loss	=	Total fair value		Total cost
Adobe	=	(8,000 shares $2.98 per share)		$24,000
	=	$23,840		$24,000
	=	$160

Investment	Account	Effect on Income
Adobe	Dividend Revenue	$ 1,200
	Unrealized Holding LossEquity Investment	(160)
		$ 1,040	Increase
Bison	Revenue from Investments	$ 5,250	Increase
Camelot	Interest Revenue	$ 3,200	Increase

Jack and June are continuing their analysis of the companys position and believe they will need to borrow $15,000 to expand operations. They consult Rivers Credit Union and secure a 6%, one-year note on September 1, 2019, with interest due at maturity.

Corvallis Canoe Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Willamette River. Additionally, the company wants to add another building on their land to offer more services for local customers.

Corvallis Canoe Company plans to raise the capital needed for this expansion by issuing $210,000 of 7.5%, six-year bonds on January 2, 2019. The bonds pay interest semiannually on June 30 and December 31. The company issues the bonds at a discount and receive $208,476.

The company also issues a mortgage payable for $450,000 on January 2, 2019. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of $45,000 plus interest for ten years, payable on December 31. The mortgage interest rate is 8%.

After looking into debt financing through notes, mortgage, and bonds payable, Corvallis Canoe Company decides to raise additional capital for the planned business expansion. The company will be able to acquire cash as well as land adjacent to its current business location. Before the following transactions, the balance in Common Stock on January 1, 2018, was $136,000 and included 136,000 shares of common stock issued and outstanding. (There was no Paid-In Capital in Excess of ParCommon.) Corvallis Canoe Company had the following transactions in 2019:

Jan. 1	Issued 50,000 shares of $1 par value common stock for a total of $200,000.
10	Issued 20,000 shares of 4%, $3 par value preferred stock in exchange for land with a market value of $70,000.
Dec. 15	Declared total cash dividends of $15,000.
20	Declared an 8% common stock dividend when the market value of the stock was $4.50 per share.
31	Paid the cash dividends.
31	Distributed the stock dividend.

Requirements

1. Journalize the 2019 transactions just provided above and include descriptions.

Date	Account title	Debit	Credit
Jan 1.	Cash	200,000
	Common stock		200,000
Jan 10.	Land	70,000
	Preferred stock - 20,000 shares of 4% at 3$ par value		70,000
Dec 15.	Cash dividends	15,000
	Dividends payable		15,000
Dec 20.	Stock dividends (50,000 x 8% x 4.50)	18,000
	Common stock dividends distributable		18,000
Dec 31.	Cash dividends	50,000
	Cash		50,000
Dec 31.	Common stock dividend distributable	18,000
	Common stock		18,000

2. Calculate the new balance in Retained Earnings as of December 31, 2019. Assume the beginning balance on January 1, 2019 was $4,520 and net income for the year was $417,000. See the next page for a Comparative Balance Sheet for years 2018 and 2019. The 2019 figures shown are not final.

Corvallis Canoe Company

Statement of Retained Earnings

December 31, 2019

Beginning Retained Earnings, January 1st 2018	$ 4,520
Plus Net Income	$ 417,000
Total	$ 421,520
Less Dividends	$ (15,000)
Less: Stock Dividends - $ 4.50 a share at 4,000 shares	$ (18,000)
Retained Earnings, December 31, 2018	$ 388,520

3. Update the stockholders equity section of the balance sheet as of December 31, 2019 with the additional information given in the transactions provided just above. There was no preferred stock issued prior to the 2019 transactions.

Corvallis Canoe Companys comparative balance sheet is shown next for the years 2018 and 2019 (NOTE: the 2019 amounts were assumed).

Additional data for Corvallis Canoe Company is:

1. The income statement for 2019 included the following items:

a. Net income, $417,000.

b. Depreciation expense for the year, $34,330.

c. Amortization on the bonds payable, $254.

2. There were no disposals of property, plant and equipment during the year. All acquisitions of PP&E were for cash except the land, which was acquired by issuing preferred stock. These included an office building and furniture for the new offices.

3. The company issued bonds payable with a face value of $210,000, receiving cash of $208,476.

4. The company distributed 4,000 shares of common stock in a stock dividend when the market value was $4.50 per share. All other dividends were paid in cash.

5. The common stock, except for the stock dividend, was issued for cash.

6. The cash receipt from the notes payable in 2019 is considered a financing activity because it does not relate to operations.