Information:

Using the money from their recent bond issue, Terrys management has decided to declare an additional $562,500 dividend. The date of declaration is December 30, Year 3. The date of record will be January 15, Year 4, and the date of payment will be January 30, Year 4.

As an additional signal to the market, Terrys management repurchased 205,000 shares of Terrys common stock on December 15, Year 3 for $8.00 a share.

Terrys management would like to know the effect of the sale on the following ratios:

*Current Ratio

*ROA

Assignment:

1. Calculate each of the two (2) ratios before you make any adjustments.

2. Make the appropriate journal entries, if any, to account for Terrys extra dividend and stock repurchase (including any necessary changes to income tax expense).

3. Make any necessary changes to the financial statements.

4. Calculate the two (2) ratios after you make any adjustments.

Terry Co.
Balance Sheet
As of 12/31/Year 3
	Year 3	Year 2
Assets
Current Assets
Cash	$ 5,554,969	$3,330,000
A/R	$5,994,000	$5,661,000
Allowance for Bad Debts	($333,000)	($1,665,000)
Inventory	$7,992,000	$9,324,000
Prepaid Insurance	$499,500	$999,000
Prepaid Rent	$832,500	$666,000
Total Current Assets	$20,539,969	$18,315,000
Long-term Investments
Loans to other businesses	$2,664,000	$2,664,000
Expansion Fund	$2,843,560	$2,843,560
Total Long-term Investments	$5,507,560	$5,507,560
PPE
Land	$7,326,000	$4,662,000
Building	$5,328,000	$5,328,000
Equipment	$18,648,000	$8,658,000
Accumulated Depreciation	($8,658,000)	($6,660,000)
Total PPE	$22,644,000	$11,988,000
Intangible Assets
Patents, net	$999,000	$999,000
Total Assets	$49,690,529	$36,809,560
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable	$3,044,570	$3,996,000
Income Tax Payable	$ 2,322,880	$666,000
Interest Payable	$ 30,000	$0
Unearned Revenue	$1,198,800	$999,000
Wages Payable	$666,000	$832,500
Current Portion of Loan Payable	$333,000	$333,000
Total Current Liabilities	$7,595,250	$6,826,500
Long-term Debt
Loan Payable	$3,663,000	$3,996,000
Notes Payable	$9,324,000	$5,328,000
Bonds Payable	$ 1,561,447	$0
Total Long-term Debt	$14,548,447	$9,324,000
Total Liabilities	$22,143,697	$16,150,500
Stockholders' Equity
Common stock	$2,660,000	$2,660,000
($1 par, 4,655,000 authorized, 2,660,000 outstanding)
Additional Paid-In capital	$1,998,000	$1,998,000
Retained Earnings	$23,633,803	$16,746,032
Accumulated OCI	($744,972)	($744,972)
Total Stockholders' Equity	$27,546,831	$20,659,060
Total Liabilities and Stockholder's Equity	$49,690,528	$36,809,560