DATE TRANSACTIONS Jan 1 Issued 50,000 shares of $3 par value common stock at a price of $18 per share. Jan 1 Issued 10,000 shares of $10 par value, 6% preferred stock at a price of $50 per share. Jan 1 Traded old equipment plus $5,000 cash for new, updated equipment. It was determined that the trade had commercial substance. The old equipment had an original cost of $40,000 and accumulated depreciation of $24,000 and the new equipment had a fair value of $18,000. Jan 1 Paid $8,000 cash successfully defending their existing patent. Due to the successful defense, life of the patent is expected to be 10 years from the date of defense. April 1 Declared a 10% common stock dividend. The dividend is payable in shares of common stock on May 1st to common stockholders of record on April 25th. The market price of the common stock on the date of declaration was $20 per share. May 1 Issued the common stock to settle the dividend declared on April 1st. July 1 Issued $400,000 par value, 6%, 10 year bonds payable (bonds mature July 1, 2025). The bonds pay interest semi-annually on June 30th and December 31st. At the time of issuance, the market rate of interest for bonds of similar risk was 4%. July 1 Purchased land and a building for $500,000 by paying $50,000 down and taking out a note for $450,000. The fair value of the land was estimated at $250,000 and the fair value of the building was estimated at $280,000. July 1 Paid $5,000 cash for a one year insurance policy on the building. July 1 Purchased 5,000 shares of the companys own common stock, for treasury stock purposes, at $20 per share. The company uses the COST method to account for treasury stock purchases. July 1 Paid the short term note (see beginning balance sheet) plus 6 months of interest at a stated annual rate of 5%. Sept 15 A customer who owed the company $1,500 declared bankruptcy. The company wrote the customers account off. Oct 1 Purchased 5,000 shares of XYZ company for $20 per share. The securities are classified as Trading securities. No dividends were declared or paid by XYZ during the year. Dec 1 Reissued 2,000 shares of the treasury stock purchased on July 1st for $25 per share. Dec 31 Declared a $.25 dividend per common share and the required dividend on the preferred shares. The dividend will be paid on February 25th to stockholders of record on February 20th Dec 31 Paid interest on the bonds issued on July 1st. (Be sure to amortize the premium as well, using the effective interest method). Dec 31 Paid $33,750 on the note issued on July 1st. Of the amount paid, $11,250 was interest and $22,500 reduced the principal. Summary Inventory purchases during the year were $1,300,000 and all were on account. 6 Summary Sales for the year were $2,350,000, with $400,000 for cash and the remainder on account. The cost of the goods sold was $1,010,000. NOTE: Argyle uses the perpetual method of accounting for inventory. Therefore, the inventory account is debited whenever inventory is purchase and credited whenever inventory is sold. Summary Cash collections on accounts receivable for the year were $1,200,000. Summary Cash payments for inventory purchased on account were $825,000. Summary Total (gross) payroll for the year was $125,000. Assume a federal income tax rate of 25%, a FICA rate of 7.65%, and a federal unemployment tax rate (net of state tax credit) is .8% and the state unemployment tax rate is 3%. Assume all wages owed to employees were paid in cash, NONE of the payroll taxes have been paid yet. Summary Customers returned merchandise, with a sales price of $73,000 and a cost of $31,390, for full credit (e.g. their account was credited). As there was no damage to the returned merchandise, the goods were returned to inventory. Summary Purchased office supplies for $9,000 cash. Summary Paid $43,000 cash for the years utilities. SUPPLEMENTARY INFORMATION Much of the information needed to prepare adjusting entries is included in the transaction information (for example when trading old equipment for new, the life and salvage value of the new equipment is provided in the transaction information). However, additional information is necessary for some adjusting entries. This is provided below: 1. The company uses the straight line method to depreciate (and/or amortize) all long term assets. The new equipment (received January 1) has an expected life of 6 years and no salvage value, while the old equipment (that was not traded-in on January 1st) has a remaining life of 10 years and $0 salvage value. The expected life of the building purchased on July 1, is 20 years, and expected salvage value is $40,000. 2. After the successful defense, the patent has a remaining life of 10 years. 3. The company uses the percentage of receivables method when estimating bad debt expense. Estimated A/R expected to be uncollectible = 2% of ending accounts receivable. 4. The company took a physical inventory of office supplies at the end of the year, and determined $8,000 remained. 5. The XYZ stock, purchased on October 1st was trading at $23 per share on December 31st. 6. Assume, for simplicity, there are no differences between financial and taxable income. Assume a 35% income tax rate and taxes will be paid sometime in 2014 (after computing income taxes and income taxes payable, dont forget to post the amounts to the general ledger before closing revenue and expense accounts).