Note: You must complete part 1 before part 2. After all of the transactions for the year ended December 31, 2016, had been posted [including the transactions recorded in part (1) and all adjusting entries], the data that follows were taken from the records of Equinox Products Inc. Income statement data: Advertising expense $150,000 Cost of merchandise sold 3,700,000 Delivery expense 30,000 Depreciation expenseoffice buildings and equipment 30,000 Depreciation expensestore buildings and equipment 100,000 Dividend revenue 4,500 Gain on sale of investment 4,980 Income from Pinkberry Co. investment 76,800 Income tax expense 140,500 Interest expense 21,000 Interest revenue 2,720 Miscellaneous administrative expense 7,500 Miscellaneous selling expense 14,000 Office rent expense 50,000 Office salaries expense 170,000 Office supplies expense 10,000 Sales 5,254,000 Sales commissions 185,000 Sales salaries expense 385,000 Store supplies expense 21,000 Retained earnings and balance sheet data: Accounts payable $194,300 Accounts receivable 545,000 Accumulated depreciationoffice buildings and equipment 1,580,000 Accumulated depreciationstore buildings and equipment 4,126,000 Allowance for doubtful accounts 8,450 Available-for-sale investments (at cost) 260,130 Bonds payable, 5%, due 2024 500,000 Cash 246,000 Common stock, $20 par (400,000 shares authorized; 100,000 shares issued, 94,600 outstanding) 2,000,000 Dividends: Cash dividends for common stock 155,120 Cash dividends for preferred stock 100,000 Goodwill 500,000 Income tax payable 44,000 Interest receivable 1,125 Investment in Pinkberry Co. stock (equity method) 1,009,300 Investment in Dream Inc. bonds (long term) 90,000 Merchandise inventory (December 31, 2016), at lower of cost (FIFO) or market 778,000 Office buildings and equipment 4,320,000 Paid-in capital from sale of treasury stock 13,000 Excess of issue price over parcommon stock 886,800 Excess of issue price over parpreferred stock 150,000 Preferred 5% stock, $80 par (30,000 shares authorized; 20,000 shares issued) 1,600,000 Premium on bonds payable 19,000 Prepaid expenses 27,400 Retained earnings, January 1, 2016 9,319,725 Store buildings and equipment 12,560,000 Treasury stock (5,400 shares of common stock at cost of $33 per share) 178,200 Unrealized gain (loss) on available-for-sale investments (6,500) Valuation allowance for available-for-sale investments (6,500) On your own paper, in the working papers, or using a spreadsheet, prepare the following: a. Prepare a multiple-step income statement for the year ended December 31, 2016, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were $100,000. (Round earnings per share to the nearest cent.) Save your calculations and enter the requested amounts below. b. Prepare a retained earnings statement for the year ended December 31, 2016. Save your calculations and enter the requested amounts below. c. Prepare a balance sheet in report form as of December 31, 2016. Save your calculations and enter the requested amounts below. If required, only use the minus sign to indicate net loss before income tax, net loss, or a deficit balance in retained earnings. Gross profit $ Total selling expenses $ Total administrative expenses $ Total operating expenses $ Income from operations $ Net other expenses and income $ Income tax $ Net income $ Earnings per common share (rounded to the nearest cent) $ Retained earnings, January 1, 2016 $ Total current assets $ Investment in Dream Inc. bonds $ Total property, plant, and equipment $ Total assets $ Total current liabilities $ Net long-term liabilities $ Total liabilities $ Total paid-in capital preferred 5% stock $ Total paid-in capital common stock, $20 par $ Total paid-in capital $ Retained earnings, December 31, 2016 $ Total stockholders' equity (part 1) 1. Journalize the selected transactions. If no entry is required, select "No entry required" from the dropdown and leave the amount boxes blank. For a compound transaction, if an amount box does not require an entry, leave it blank. a. Issued 15,000 shares of $20 par common stock at $30, receiving cash. Description Debit Credit Cash 450,000 Common Stock 300,000 Paid-In Capital in Excess of Par-Common Stock 150,000 b. Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash. Description Debit Credit Cash 400,000 Preferred Stock 320,000 Paid-In Capital in Excess of Par-Preferred Stock 80,000 c. Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. Description Debit Credit Cash 520,000 Bonds Payable 500,000 Premium on Bonds Payable 20,000 d. Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. Description Debit Credit Cash Dividends 50,000 Cash Dividends Payable 50,000 Common stock Cash Dividends 20,000 Cash Dividends Payable 20,000 Preferred stock e. Paid the cash dividends declared in (d). Description Debit Credit Cash Dividends Payable 70,000 Cash 70,000 f. Purchased 7,500 shares of Solstice Corp. at $40 per share, plus a $150 brokerage commission. The investment is classified as an available-for-sale investment. Description Debit Credit Investments-Solstice Corp. 300,150 Cash 300,150 g. Purchased 8,000 shares of treasury common stock at $33 per share. Description Debit Credit Treasury Stock 264,000 Cash 264,000 h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for $24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment. Description Debit Credit Investment in Pinkberry Co. Stock 960,000 Cash 960,000 i. Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued. Description Debit Credit Cash Dividends 20,000 Cash Dividends Payable 20,000 j. Paid the cash dividends to the preferred stockholders. Description Debit Credit Cash Dividends Payable 70,000 Cash 500,000 k. Received $27,500 dividend from Pinkberry Co. investment in (h). Description Debit Credit Cash 27,500 Investment in Pinkberry Co. Stock 27,500 l. Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of $375. The bonds are classified as a held-to-maturity long-term investment. Description Debit Credit Investments-Dream Inc. Bonds 90,000 Interest Receivable 375 Cash 90,375 m. Sold, at $38 per share, 2,600 shares of treasury common stock purchased in (g). Description Debit Credit Cash 98,800 Treasury Stock 85,800 Paid-In Capital from Sale of Treasury Stock 13,000 n. Received a dividend of $0.60 per share from the Solstice Corp. investment in (f). Description Debit Credit Cash 4,500 Dividend Revenue 4,500 o. Sold 1,000 shares of Solstice Corp. at $45, including commission. Description Debit Credit Cash 45,000 Gain on Sale of Investment 4,980 Investments-Solstice Corp. 40,020 p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method. Description Debit Credit Interest Expense 11,500 Premium on Bonds Payable 1,000 Cash 12,500 q. Accrued interest for three months on the Dream Inc. bonds purchased in (l). Description Debit Credit Interest Receivable Interest Revenue r. Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. Description Debit Credit Investment in Pinkberry Co. Stock 76,800 Income from Pinkberry Co. 76,800 s. The fair value for Solstice Corp. stock was $39.02 per share on December 31, 2016. The investment is adjusted to fair value, using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero. Description Debit Credit Unrealized Gain (Loss) on Available-for-Sale Investments Valuation Allowance for Available-for-Sale Investments Feedback 1a. and 1b. Increase the common and preferred stock accounts by the par value of the shares. Record any amount above par value in a separate paid-in capital equity account. Debit cash for the total amount received. 1c. Record the cash received (bond face x 104%), bonds payable (credit) at the face of the bonds, and the premium on the bonds payable (credit) for the difference between cash received and bonds payable. 1d. Increase Cash Dividends and Cash Dividends Payable by (Per share dividend x Number of shares). 1e. Decrease Cash Dividends Payable and Cash by the combined amount of dividends declared in requirement (d). 1f. Record the investment debit [(7,500 shares x $40 per share) + $150 commission] and reduce Cash (credit). 1g. The repurchase price becomes the new basis cost of the treasury stock. Increase Treasury stock (debit) and decrease Cash (credit) for number of shares times cost. 1h. Increase the investment and decrease Cash for the purchase price (number of shares x price). 1i. Increase Cash Dividends and Cash Dividends Payable by (Per share dividend x Number of shares). 1j. Decrease Cash Dividends Payable and Cash by the amount of dividends declared in requirement (i). 1k. Increase Cash and reduce the investment for the amount of the dividend. 1l. Increase the investment (debit) for the purchase price, increase interest receivable (debit) for the accrued interest, and decrease cash (credit) for the investment plus accrued interest. 1m. Recall that when acquired, the repurchase price of treasury stock becomes the new base price of the stock. Sales that exceed the base amount add to paid-in capital, while sales below this base amount reduce it. Cash is also increased and treasury stock is reduced in the transaction. 1n. Increase Cash and increase Dividend Revenue by (Per share dividend x Number of shares). 1o. Record the cash received (shares sold x per share price). Reduce the investment by the original cost per share [Shares sold x (Total investment in (f) $300,150 7,500 shares)]. To complete the entry, enter the difference between the sale amount and the original cost as a gain or loss on sale of investment. 1p. Bond face amount from requirement (c) x interest rate x half year = interest. Record this amount of total interest as a credit to Cash. Calculate the amount of premium to amortize as: [(total premium from requirement (c) 10 years) x ]; debit this amount to Premium on Bonds Payable. The cash paid minus the amortized premium equals the interest expense (debit). 1q. Dream Inc. bond principal x interest rate x 3/12 year = interest; Increase Interest Receivable (debit) and Interest Revenue (credit) for this amount. 1r. Calculate the percentage of Pinkberry investment by dividing acquired stock by shares outstanding. Increase Investment (debit) and increase income (credit) for share of income (Total earnings x percentage of investment). 1s. Calculate Solstice stock per share cost as Total investment in (f) divided by number of shares (or $300,150 7,500 shares). The unrealized gain or loss is recorded as the difference between the securities' cost and their fair value. The offsetting account in the transaction is valuation allowance.