Razul took the proceeds from dissolving the partnership and purchased a corporation selling 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 also wants to start selling heating, ventilation and air conditioning (HVAC) parts and machinery through a separate division of the company called 'HVAC Parts & 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. 2020 2021 Holister Electric Inc. Balance Sheet As at December 31, 2020 Assets Liabilities Cash $32,850 Accounts Payable $33,500 Accounts Receivable 21,420 Unearned Revenue 10,800 Prepaid Insurance 11,300 Bank Loan 37,200 Inventory 75,200 Total Liabilities 81,500 Property, Plant & Equipment 218,000 Shareholders' Equity Accumulated Depreciation -46,000 Common Shares - 100,000 issued 100,000 Retained Earnings 131,270 Total Shareholder's Equity 231,270 Total Assets $312,770 Liabilities & Owner's Equity $312,770 At 2020, Razul has authorized 170,000 common shares and 15,000 preferred shares. The preferred shares will be cumulative and pay $9 dividends. The 100,000 shares issued were issued to Razul. He will maintain control of the company and sit on the board of directors. Transactions during 2021 a) On January 1, Holister purchased a strategic investment of 21,000 shares in Gregor Inc. for $17 per share. This represents 33% of Gregor Inc. common shares. On December 31, Gregor Inc. declares and pays a $109,000 dividend and reports a net income of $425,600. Holister will use the equity method to record this investment. b) On January 1, Razul has located a few private investors that wish to purchase shares in the new corporation. Some want common shares, while other are interested in preferred shares. Holister Electric Inc. issued 60,000 common shares for $150,000 cash and issued 11,000 preferred shares for $44,000 cash. c) On March 1, Holister Electric Inc. issued and sold $301,000, 6 year bonds with an interest rate of 6%. The market rate at the time of issue was 7%. Any premium or discount on the bond is amortized using the effective interest rate method. Interest will be paid annually on February 28. The Present value of 1 and annuity of 1 of 7% for 6 periods are 0.6663 and 4.7665, respectively. Use a 4 decimal factor for the bond calculation. d) On April 1, the company has extra cash on hand and would like to invest it in short-term bonds issued by Gamma Ltd. The company bought 24, $1,900 short term (one-year) bonds at par on this date and intended to sell these bonds before maturity. The interest rate on the bond is 11%, payable annually at March 31. On December 31, 2021, each bond was trading in the market at $1,920. On January 1, 2022, all bonds were sold for $41,472. e) On July 1, Holister purchased a $75,600, 8 year bond paying 15%. Interest is paid every 6 months on December 31 and June 30. The company plans to hold onto the bond until it matures. f) On November 23, the company purchased 3,900 shares of Daenerys Inc. at $20 per share for the purpose of trading. The shares are less than 9% of the total shares of Daenerys Inc. and are a non-strategic investment. By December 31, the price per share had gone up to $23 per share. g) During 2021, Holister Electric Inc. has performed well, so the board of directors decided to pay dividends. On November 30, 2021, the company declared cash dividends of $120,000, which will be paid out on December 15, 2021. Use the cash dividends method and close cash dividends at the end of the year. Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the investments made during the year, 2021 . Also prepare adjustments at year end to accrue interest on the bond and to record change to any applicable investments. Date Account Title and Explanation DR CR At the end of the year, Holister Electric has adjusted Trial balance. - The expansion into HVAC did not go as planned and had to be discontinued. - Below is the updated and correct balances taking into consideration the transactions happened during the year (including day-to-day transactions and the transactions above). - Complete the list by filling in the missing values from the journal entries you created during the year. *Interest payable, interest receivable ,and interest revenue balances are from the bonds issued and purchased during the year. Interest expense from bank loan are paid within the year. Assume the tax rate is 28%. Assume income tax has already been paid. You will just have to calculate the income tax expense on the income statement. Leave Income Tax Expense and Income Tax Savings blank on the Trial Balance until you calculate them on the income statement. 28 Holister Electric Inc. 14 Marks Adjusted Trial Balance December 31, 2021 Account Title Debit Credit Cash $6,075 Accounts Receivable $36,520 Interest Receivable Prepaid Insurance $24,560 Short-Term Investment - Daenerys Inc. $78,000 Short-Term Investments - Bonds $45,600 Valuation Allowance for Fair Value Adjustment Inventory $148,000 Investment in Gregor Inc. Common shares Long-Term Investment - Bond Discount on Bonds Property, Plant & Equipment $296,000 Accumulated Depreciation $93,100 1671 Accounts Payable $145,000 15,050 Interest Payable Unearned Revenue $10,800 Premium on Bonds Bonds Payable Bank Loan $248,000 Common Shares Preferred Shares Retained Earnings $11,270 Interest Revenue Revenue from Investment in Gregor Inc. Unrealized Gain on Fair Value Adjustment Income Tax Savings - Discontinued Operations Sales Revenue $871,000 Sales Discounts $27,100 Sales Returns and Allowances $38,800 Cost of Goods Sold $365,820 Depreciation Expense $47,100 Insurance Expense $7,900 Interest Expense $36,561 Loss from Discontinued Operations $142,000 Maintenance Expense $33,300 Professional Fees Expense $19,650 Rent Expense $66,000 Salaries Expense $89,100 Telephone Expense $6,200 Travel Expense $39,300 Income Tax Expense - Continuing Operations Unrealized Loss on Fair Value Adjustment Total $2,191,040 $2,191,040 Notes: The bank loan is payable over 7 years and $35,429 will be paid by December 31, 2022. The interest on this loan is 8% per annum. Prepare a multistep income statement for the year ending December 31, 2021. Round answers to the nearest whole number. 29 Marks Holister Electric Inc. Income Statement For the Year Ended December 31, 2021