Horngren's Accounting, 12th Edition

Chapter 14, Problem 1CPP

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Chapter 14, Problem 1CPP Bookmark Show all steps: ON Problem The Tusquittee Company is a retail company that began operations on October 1, 2018, when it incorporated in the state of North Carolina. The Tusquittee Company is authorized to issue 100,000 shares of $1 par value common stock and 50,000 shares of 5%, $50 par 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 sales 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. balances are $0. The Tusquittee Company Chart of Accounts Cash Merchandise Inventory Land Building Store Fixtures Accounts Payable Employee Income Taxes Payable FICA OASDI Taxes Payable FICA-Medicare Taxes Payable Employee Health Insurance Payable Federal Unemployment Taxes Payable State Unemployment Taxes Payable Income Tax Payable Sales Tax Payable Estimated Warranty Payable Interest Payable Notes Payable Mortgages Payable Common Stock -$1 Par Value Paid-In Capital in Excess of Par-Common Paid-In Capital from Treasury Stock Transactions Retained Earnings Treasury Stock Common Cash Dividends Sales Revenue Cost of Goods Sold Salaries Expense Payroll Tax Expense Utilities Expense Depreciation Expense Warranty Expense Income Tax Expense Interest Expense 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 first $118,500 earned: Medicare: 1.45% up to $200,000, 2.35% on earnings above $200,000 Additional payroll information includes Monthly Federal ncome Tax Insurance Health Employee Kate Jones Mary Smith Sherry Martin Salary 6,000 5,000 3,000 1,800 1,000 450 300 300 300 c. Calculations for employer payroll taxes liabilities for October, November, and December OASDI: 6.2% on first $118,500 earned: Medicare: 1.45%; SUTA: 5.4% on first $7,000 earned; FUTA: 0.6% on 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. e. Accrued nterest espense on the note payable for the stor ftaturs d. Accrued interest expense on the mortgage payable. e. Accrued income tax expense of $36,000. 5. Post adjusting entries and prepare an adjusted trial balance. 6. Prepare a multi-step income statement and statement of retained earnings for the quarter ended December 31, 2018. Prepare a 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 company's 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 decimal 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 Tusquittee 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 the 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% incom e tax rate: 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? Chapter 14, Problem 1CPP Bookmark Show all steps: ON Problem The Tusquittee Company is a retail company that began operations on October 1, 2018, when it incorporated in the state of North Carolina. The Tusquittee Company is authorized to issue 100,000 shares of $1 par value common stock and 50,000 shares of 5%, $50 par 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 sales 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. balances are $0. The Tusquittee Company Chart of Accounts Cash Merchandise Inventory Land Building Store Fixtures Accounts Payable Employee Income Taxes Payable FICA OASDI Taxes Payable FICA-Medicare Taxes Payable Employee Health Insurance Payable Federal Unemployment Taxes Payable State Unemployment Taxes Payable Income Tax Payable Sales Tax Payable Estimated Warranty Payable Interest Payable Notes Payable Mortgages Payable Common Stock -$1 Par Value Paid-In Capital in Excess of Par-Common Paid-In Capital from Treasury Stock Transactions Retained Earnings Treasury Stock Common Cash Dividends Sales Revenue Cost of Goods Sold Salaries Expense Payroll Tax Expense Utilities Expense Depreciation Expense Warranty Expense Income Tax Expense Interest Expense 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 first $118,500 earned: Medicare: 1.45% up to $200,000, 2.35% on earnings above $200,000 Additional payroll information includes Monthly Federal ncome Tax Insurance Health Employee Kate Jones Mary Smith Sherry Martin Salary 6,000 5,000 3,000 1,800 1,000 450 300 300 300 c. Calculations for employer payroll taxes liabilities for October, November, and December OASDI: 6.2% on first $118,500 earned: Medicare: 1.45%; SUTA: 5.4% on first $7,000 earned; FUTA: 0.6% on 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. e. Accrued nterest espense on the note payable for the stor ftaturs d. Accrued interest expense on the mortgage payable. e. Accrued income tax expense of $36,000. 5. Post adjusting entries and prepare an adjusted trial balance. 6. Prepare a multi-step income statement and statement of retained earnings for the quarter ended December 31, 2018. Prepare a 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 company's 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 decimal 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 Tusquittee 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 the 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% incom e tax rate: 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