Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on January 1, 2013. The stallion is depreciated on a straight-line basis, with depreciation for partial years rounded to the nearest month. Estimated useful life was nine years, with no residual value. After owning the animal for six years and five months, Louisville Farms sold the stallion on May 31, 2019, for cash of $85,000. Depreciation had last been recorded on December 31, 2018.

1.1. Compute to the nearest full month depreciation for the fractional period from January 1, 2019 to May 31 of 2019. $______________ (Show your calculations).

1.2. Compute the book value of the stallion at May 31, 2019, the date of sale. $______________ (Show your calculations).

1.3. Compute the gain or loss on the sale of the stallion. $______________ [gain/loss] (Show your calculations).

1.4. In the space provided below, prepare the journal entry to record the sale of the stallion on May 31, 2019. [Use Breeding Stock as the title of the asset account. Assume that depreciation to date of sale already has been recorded.] (Show your calculations).

2009 May 31 General Journal

2.1. Define bonds and explain the type of bonds you think the CEO, Mr. Carter should look at and why? 2.2. Explain the income tax advantage of raising capital by issuing bonds rather than by selling capital stock.

2.3. There is a business saying that You shouldn't be in business if your company doesn't earn higher than bank rates. This means that if a company is to succeed, its return on assets should be significantly higher than its cost of borrowing. Explain this saying to Mr. Carter and tell him why is this so important?

3.1. Why is noncumulative preferred stock often considered an unattractive form of investment?

3.2. State the balance sheet or income statement classification (asset, liability, stockholders' equity, revenue, or expense) of each of the following accounts:

A. Cash(receivedfromtheissuanceofcapitalstock). B. OrganizationCosts. C. Preferred Stock. D. Retained Earnings.

E. AdditionalPaid-inCapital. F. IncomeTaxesPayable.

3.3. Louisville Farms, sold 10,000 shares of common stock, which has a par value of $8, for $13 per share. The company's balance in retained earnings is $75,000. Prepare the stockholders' equity section of the company's balance sheet.