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. Assets Cash Holister Electric Inc. Balance Sheet As at December 31, 2020 Liabilities Accounts Payable $25,000 $12,200 Accounts Receivable 13,500 Unearned Revenue 5,200 Prepaid Insurance 3,600 Bank Loan 26,000 Inventory 72,000 Total Liabilities 43,400 Property, Plant & Equipment. 210,000 Shareholders' Equity Accumulated Depreciation -25,000 Common Shares - 90,000 issued 90,000 Retained Earnings 165,700 Total Shareholder's Equity 255,700 Total Assets $299,100 Liabilities & Owner's Equity $299,100 26 27 At 2020, Razul has authorized 150,000 common shares and 10,000 preferred shares. The preferred shares will be 28 cumulative and pay $5 dividends. The 90,000 shares issued were issued to Razul. He will maintain control of the 29 company and sit on the board of directors. 30 31 Transactions during 2021 32 33 34 35 56 36 37 38 39 40 41 42 43 44 45 46 47 48 a) On January 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. declares and pays a $60,000 dividend and reports a net income of $400,000. 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 30,000 common shares for $75,000 cash and issued 3,000 preferred shares for $12,000 cash. c) On March 1, Holister Electric Inc. issued and sold $150,000, 6 year bonds with an interest rate of 7%. The market rate at the time of issue 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. The Present value of 1 and annuity of 1 of 8% for 6 periods are 0.6302 and 4.6229,respectively. Use a 4 decimal factor for the bond calculation. 49 d) On April 1, the company has extra cash on hand and would like to invest it in short-term bonds issued by 50 Gamma Ltd. The company bought 20, $1,000 short term (one-year) bonds at par on this date and intended to sell 51 those bandehafara maturity. The interest rate on the hand in 0% nauable annually at March 21 On Docambor CS2 B C D E H 50 Gamma Ltd. The company bought 20, $1,000 short term (one-year) bonds at par on this date and intended to sell 51 these bonds before maturity. The interest rate on the bond is 9%, payable annually at March 31. On December 52 31, 2021, each bond was trading in the market at $1,020. On January 1, 2022, all bonds were sold for $21,000. 53 54 55 56 57 e) On July 1, Holister purchased a $50,000, 5 year bond paying 6%. Interest is paid every 6 months on December 31 and June 30. The company plans to hold onto the bond until it matures. 58 ) On November 23, the company purchased 2,000 shares of Daenerys Inc. at $19 per share for the purpose of 9 trading. The shares are less than 4% of the total shares of Daenerys Inc. and are a non-strategic investment. By 50 December 31, the price per share had gone up to $22 per share. 1 2 g) During 2021, Holister Electric Inc. has performed well, so the board of directors decided to pay dividends. On 3 November 30, 2021, the company declared cash dividends of $50,000, which will be paid out on December 15, 4 2021. Use the cash dividends method and close cash dividends at the end of the year. 5 6 Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the investments 7 made during the year, 2021. Also prepare adjustments at year end to accrue interest on the bond and to record 8 change to any applicable investments. 9 0 Date Account Title and Explanation DR CR 38 marks 36 37 38 39 40 41 42 43 14 45 46 9 H 7 8 9 At the end of the year, Holister Electric has adjusted Trial balance. 50-The expansion into HVAC did not go as planned and had to be discontinued. 1-Below is the updated and correct balances taking into consideration the transactions happened during the year 2 (including day-to-day transactions and the transactions above). 3-Complete the list by filling in the missing values from the journal entries you created during the year. 4 *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. 8 Assume the tax rate is 30%. Assume income tax has already been paid. You will just have to calculate the income 9 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. CS2 57 did with the year. 58 Assume the tax rate is 30%. Assume income tax has already been paid. You will just have to calculate the 59 income tax expense on the income statement. 60 Leave Income Tax Expense and Income Tax Savings blank on the Trial Balance until you calculate them on 61 the income statement. 62 63 64 65 Holister Electric Inc. Adjusted Trial Balance December 31, 2021 Cash 66 Account Title 67 58 Accounts Receivable Debit Credit 14 marks: 1 mark per balance $27,165 $58,341 69 Interest Receivable 70 Prepaid Insurance $16,000 71 Short-Term Investment - Daenerys Inc. $38,000 72 Short-Term Investments - Bonds $20,000 73 Valuation Allowance for Fair Value Adjustment 74 Inventory $110,000 75 Investment in Gregor Inc. Common shares 3 76 Long-Term Investment - Bond 77 Discount on Bonds 78 Property, Plant & Equipment 9 Accumulated Depreciation 30 Accounts Payable 31 Interest Payable 82 Unearned Revenue 3 Premium on Bonds 4 Bonds Payable 5 Bank Loan $240,000 $50,000 $65,000 $5,200 $40,000 CS2 B C D A 184 Bonds Payable 185 Bank Loan 186 Common Shares 187 Preferred Shares 188 Retained Earnings LE $40,000 H $115,700 189 Interest Revenue 190 Revenue from Investment in Gregor Inc. 191 Unrealized Gain on Fair Value Adjustment 192 Income Tax Savings - Discontinued Operations 193 Sales Revenue $690,000 194 Sales Discounts $8,000 195 Sales Returns and Allowances $10,000 196 Cost of Goods Sold $310,500 197 Depreciation Expense $25,000 198 Insurance Expense $2,000 199 Interest Expense $2,000 200 Loss from Discontinued Operations $14,700 201 Maintenance Expense $9,000 202 Professional Fees Expense $6,600 203 Rent Expense $38,000 204 Salaries Expense $75,000 205 Telephone Expense $4,000 06 Travel Expense $16,700 07 Income Tax Expense - Continuing Operations 08 Unrealized Loss on Fair Value Adjustment $1,475,310 $1,475,310 + 09 Total 10 Notes: 11 The bank loan is payable over 8 years and $5,000 will be paid by December 31, 2022. The interest on this loan 12 is 5% per annum. 13 Bank loan is payable over 8 years and $5,000 will be paid by December 31, 2022. The interest on thi 212 is 5% per annum. 213 214 Prepare a multistep income statement for the year ending December 31, 2021. Round answers to the nea 215 whole number. Holister Electric Inc. Income Statement For the Year Ended December 31, 2021 216 217 218 219 220 Sales Revenue 221 222 223 Net Sales 224 Less Cost of Goods Sold 225 Gross Profit 226 227 Operating Expenses 228 229 230 231 232 233 234 235 236 Total Operating Expenses 237 Income from Operations 238 Other Revenue and Expenses 239 240 29 marks: 1 mark per line + 235 236 Total Operating Expenses 237 Income from Operations 238 Other Revenue and Expenses 239 240 241 242 243 Income before Tax 244 Income Tax Expense 245 Income from Continuing Operation 246 Discontinued Operations 247 Loss from Discontinued Operatio 248 Income Tax Savings 249 Net Income 250 251 252 253 254) + 255 256 Prepare a statement of retained earnings at December 31, 2021. Round answers to the nearest whole number. 257 Holister Electric Inc. Statement of Retained Earnings For the Year Ended December 31, 2021 4 marks: 1 mark per line 258 259 260 261 262 263 264 Ready CS2 Type here to search 265 Prepare a Classified Balance Sheet at December 31, 2021. Round answers to the nearest whole number. 32 marks: 1 mark per line 266 267 268 269 Assets Holister Electric Inc. Balance Sheet As at December 31, 2021 270 Current Assets 271 272 273 274 275 276 277 278 279 Total Current Assets 280 Non-Current Assets 281 282 283 284 285 Total Non-Current Assets 286 Total Assets 287 288 Liabilities 289 Current Liabilities 290 291 292 293 294 Total Current Liabilities 295 Non-Current Liabilities 296 297 298 299 Total Non-Current Liabilities 300 Total Liabilities 301 302 Shareholders' Equity 303 304 305 301 302 Shareholders' Equity 303 04 05 06 Total Shareholders' Equity 07 Liabilities & Shareholders' Equity 08 09 Using the balance sheet from the end of last year (when the company was still a proprietorship) 10 and the balance sheet just created, prepare a cash flow statement using the indirect method. 11 Round answers to the nearest whole number. 12 Note: No Property, Plant and Equipment was sold during the year. 13 14 15 16 18 19 Holister Electric Inc. Cash Flow Statement For the Year Ended December 31, 2021 20 Cash Flow from Operations 22 23 5 261 28 9 0 1 2 3 Change in Cash from Operation 5 Cash Flow from Investments 6 9 Change in Cash from Investmer 1 Cash Flow from Financing 27 marks: 1 mark per line + 339 Change in Cash from Investmen 340 341 Cash Flow from Financing 342 343 344 345 346 347 Change in Cash from Financing 348 349 Net Increase (Decrease) in cas 350 Cash at the beginning of the ye 351 Cash at the end of the year 352 353 354