Journal entry and adjusting balance. Please Answer Part 2 ONLY
- Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the investments made during the year. Also do adjustments at year end to accrue interest on the bond and to record change to any applicable investments.
- Complete the list by filling in the missing values from the journal entries you created during the year.
- Do multistep income statement for the year ending December 31, 2021. Round answers to the nearest whole number.
Part 1
Wand rm-yr decided to start a partnership called 5A Consulting on JanuaryI 1, 2021]. Each of them contributed anymbergf items to the partnership, which are listed below. All tangible asseE are listed at their market value. saunas menu Accounts Pa able 3i] DUE] .L:... Anni Equipment [In March 1, Wand Amy added a new partner to the business, Sheila. Sheila will contribute $I, and receive a 35% share of the business. Use the capital balances from Ja nuanr 1 to determine an'r bonuses. Assume the existing partners will split anyI bonus euenlv. During the year, Wand .ili.rr11..r withdrew $20,510!) and 5153410 respectively and the business reported a net income of Sm Their partnership agreement provided for sharing of net income {loss} on the following basis: 1. Salary.r of $, is allocated to ml, $5, to Amp, and SEJl to Sheila. 2. Interest is allocated at Hit. of each partner's opening capital balance. 3. Remainder is shared where Mgets 40%, Arm! gets 255-5, and Sheila gets 3596. During 2021, the company has performed well, so the board of directors decided to pay dividends. (in November 30, 2021, the company declared cash dividends of $50,000, which will be paid out on December 15, 2021. Use the cash dividends method and close cash dividends at the end of the year. During the year, Holister Electric made the foilowi ng investments: a10n1anuary 1, Holister purchased a strategic investment of 12,000 shares in Gregor Inc. for $11 per share. This represents 40% of Gregor Inc. common shares. On December 31, Gregor Inc. declare; and pays a $50,000 dividend and reports a net income of $400,000. Holister will use the equity method to record this investment. b} On April 1?, they purchased a $20,000, 90 day Tbill at 4% for $19,804. The Tbill mature; on July 16. c] On July 1, they purchased a $50,000, 5 year bond paying 5% when the ma rket rate was 8%. interest is paid every 5 months on December 31 and lune 30. Holister paid $45,945 to purchase the bond and plans to hold onto the bond until it matures. d} On November 23, the company purchased 2,000 shares of Daenerys inc. at $19 per share for the purpose of trading. The shares are less than 4% of the total shares of Daenerys Inc. and are a non- strategic investment. By December 31, the price per share had gone up to $22 per share. Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the invatments made during the year. Aiso prepare adjustments at year end to accme interest on the bond and to record change to any applicable investments. (39 marks} Sales Revenue 690,000 Short-Term Investment - Daenerys Inc. Telephone Expense 4,000 Travel Expense 16,700 Unearned Revenue 88,230 Notes: The bank loan is payable over 8 years and $5,000 will be paid by December 31, 2021.Razul took the proceeds from dissolving the partnership and purchased a corporation seliing electrical parts used for large production companies. He employs several people, but is looking to expand his operations further. In addition to expanding the sales of electrical parts, he aiso wants to start selling heating, ventilation and air conditioning {HVAC} parts and machinery through a separate division of the company called 'HVAC Parts 8; Machinery.' Currently, Razul owns all the shares in the corporation. To raise the needed cash, he decides to offer common and preferred shares for sale to investors starting in 2021. Below is the balance sheet at the end of 2020. Holister Electric Inc. Balance Sheet As at December 31, 2020 Assets liabilities Cash $25,000 Accounts Payable $12,200 Accounts Receivable 13,500 Unearned Revenue 5,200 Prepaid insurance 3,500 Bank Loan 26 000 inventory 22,000 Total Liabilities 43,400 Property, Plant 8: Equipment 210,000 Shareholders' Equity Accumulated Depreciation 25 000 Common Shares issued 90,CH]0 Retained Earnings 165,?00 TotaI shareholder's Equily 255 ?00 Total Assets $299,100 liabilities 8c Owner's Equity $299,100 Razul has authorized 150,000 common shares and 10,000 preferred shares. The preferred shares will be cumulative and pay $5 dividends. Razul wants to keep control of his business, so he will keep his 90,000 common shares and will sit on the board of directors. Razul has located a few private investors that wish to purchase shares in the newr corporation. Some want common shares, while other are interested in preferred shares. On January 1, 2021, Razui issues 30,000 common shares for $25,000 cash and issues 3,000 preferred shares for $12,000 cash. {in March 1, 2021, Holister Electric Inc. issued and sold $150,000, 6 year bonds with an interest rate of 7%. The market rate at the time ofissue was 8%. Any premium or discount on the bond is amortized using the effective interest rate method. Interest will be paid annually on February 28. Use a 4 decimal factor for the bond calcuiation. At the end of the year, Holister Electric has the following list of accounts and adjusted balances. The expansion into HVAC did not go as planned and had to be discontinued -All balances are normal balances. Complete the list by filling in the missing values from the journal entries you created during the year. (11 marks) -The cash balance includes all transactions during the year, including the ones you prepared. - Interest expense includes interest accrued on the bond plus interest paid on the bank loan. - Interest payable will only contain interest accrued. Interest revenue is only from items in the journal entries for the year Assume the tax rate is 30%. Assume income tax has already been paid. You will just have to calculate the income tax expense on the income statement. Account Title Balance Accounts Payable $65,000 Accounts Receivable 145,987 Accumulated Depreciation 60,000 Bank Loan 40,000 Bonds Payable Cash 17,165 Common Shares Cost of Goods Sold 310,500 Depreciation Expense 25,000 Discount on Bonds Gain on Fair Value Adjustment Insurance Expense 2,000 Interest Expense 2,000 Interest Payable Interest Revenue Inventory 110,000 Investment in Associate - Gregor Inc. Long-Term Investment - Bond Loss on Fair Value Adjustment Loss from Discontinued Operations (14,700) Maintenance Expense 9,000 Preferred Shares Premium on Bonds Prepaid Insurance 16,000 Professional Fees Expense 5,600 Property, Plant & Equipment 40,000 Rent Expense 8,000 Revenue from Investment in Associate Salaries Expense 75,000 Sales Discounts 8,000 Sales Returns and Allowances 10,000
