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 $32,850 Holister Electric Inc. Balance Sheet As at December 31, 2020 Liabilities Accounts Payable Accounts Receivable 21,420 Unearned Revenue Prepaid Insurance 11,300 Bank Loan Inventory 75,200 Total Liabilities $33,500 10,800 37,200 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. Date 2021 Jan 1 Account Title and Explanation DR CR Investment in Gregor Inc. Cash To record for cash for stock in Gregor Inc. Jan 1 Cash Common Share Preference Share To record 60,000 common shares and 11,000 preferred share March 1 Cash Bond Issued To record bond issue 48,000 48,000 194,000 28,000 128,000 170,396.00 170,396.00 April 1 Investment in short term bonds 25,200.00 Cash 25,200.00 To invest in bonds July 1 Investment in bond Cash 60,000.00 60,000.00 To record bond being purchased November Investment in Daenerys Cash 64,400.00 64,400.00 To record shares being purchased Nov 30 Retained Earnings Divdend Payable To record dividend being declared 15-Dec Dividend payable Cash To record dividend being paid 72,000.00 72,000.00 72,000.00 72,000.00 31-Dec Revenue from Investment in Gregor 121,600.00 Interest Revenue To record interest revenue 31-Dec Cash Investment in Gregor To record dividend being recorded Dec 31 Interest Payable Cash To pay interest Dec 31 Interest Recieveable Interest Revenue To record accrued interest Dec 31 Profit and loss Investment in bond To record investment pay Dec 31 Cash Interest revenue To record interest Dec 31 Interest Profit To record interest recieved Dec 31 Investment of Daenearys To profit 121,600.00 22,720.00 22,720.00 18,840.00 18,840.00 2,268.00 2,268.00 168.00 168.00 2,400.00 2,400.00 2,400.00 2,400.00 5,600.00 5,600.00 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. Holister Electric Inc. 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 Adjustmen Inventory $148,000 Investment in Gregor Inc. Common shares Long-Term Investment - Bond Discount on Bonds Property, Plant & Equipment Accumulated Depreciation Accounts Payable Interest Payable Unearned Revenue Premium on Bonds $296,000 $93,100 $145,000 $10,800 14 Marks Bonds Payable Bank Loan Common Shares Preferred Shares Retained Earnings Interest Revenue Revenue from Investment in Gregor Inc. Unrealized Gain on Fair Value Adjustment Income Tax Savings - Discontinued Operations $248,000 $11,270 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 Notes: $2,191,040 $2,191,040 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. Holister Electric Inc. Income Statement For the Year Ended December 31, 2021 29 Marks Calculate the earnings per share for i) Income from Continuing Operations, ii) Net Income. Prepare a statement of retained earnings at December 31, 2021. Round answers to the nearest whole number. Holister Electric Inc. Statement of Retained Earnings For the Year Ended December 31, 2021 Prepare a Classified Balance Sheet at December 31, 2021. Round answers to the nearest whole number. Holister Electric Inc. Balance Sheet As at December 31, 2021 32 Marks Using the balance sheet from the end of last year (when the company was still a proprietorship) and the balance sheet just created, prepare a cash flow statement using the indirect method. Round answers to the nearest whole number. Note: No Property, Plant and Equipment was sold during the year. Hint: Amortized bond discount or premium should be added to the operating activities, if there is any. Carrying amount of the bonds should be presented in the financing activities. Holister Electric Inc. Cash Flow Statement For the Year Ended December 31, 2021 26 Marks Holister Electric was able to find financial statements of another company, Stark Supplies Inc., that operates in the same industry. The comparative income statement and balance sheet of this company is shown below. Stark Supplies Inc. Income Statement For the Year Ended December 31 2021 2020 Sales Revenue $831,500 $858,000 Less Cost of Goods Sold 332,600 $343,200 Gross Profit 498,900 514,800 Operating Expenses Operating Expenses $320,300 $325,600 Interest Expense $136,000 $109,000 Depreciation Expense 27,600 $25,500 Total Operating Expenses 483,900 460,100 Income from Operations 15,000 54,700 Income Tax Expense 4,200 15,316 Net Income 10,800 39,384 Stark Supplies Inc. Comparative Balance Sheet As at December 31 2021 2020 Assets Current Assets Cash $269,600 $286,500 Accounts Receivable 180,100 141,000 Prepaid Insurance 59,000 67,000 Inventory 96,000 86,000 Total Current Assets $604,700 $580,500 Non-Current Assets Property, Plant & Equipment 495,000 489,000 Accumulated Depreciation (272,600) -245,000 Total Non-Current Assets 222,400 244,000 Total Assets $827,100 $824,500 Liabilities Current Liabilities Accounts Payable 97,100 94,800 Unearned Revenue 37,100 32,600 Total Current Liabilities $134,200 $127,400 Non-Current Liabilities Bank Loan 91,300 94,000 Total Non-Current Liabilities 91,300 94,000 Total Liabilities 225,500 221,400 Shareholders' Equity Common Shares 195,000 181,000 Retained Earnings 406,600 422,100 Total Shareholders' Equity 601,600 603,100 Liabilities & Shareholders' Equity $827,100 $824,500 Using the income statement and balance sheet from Holister Electric and Stark Supplies, calculate the appropriate 11 Marks ratios to determine which company is doing better in the categories listed below. Round all ratios to 2 decimal places. Write your explanations in the textbox. a) profitability for 2021 (gross profit margin, net profit margin, ROE, ROA, asset turnover) Stark Supplies Gross Profit Margin = 0.60 Net Profit Margin = 0.001 ROE = 0.02 ROA = 0.01 Asset Turn over = 1.01 b) liquidity for 2021 (current ratio, quick ratio, debt-to-equity) Stark Current Ratio = 4.51 Quick Ratio = 4.07 Debt = 0.37 c) management performance (DSO, A/R turnover, inventory days on hand, inventory turnover) Stark DSO 79.18 days Account Turnover = 4.62 Inventory days on hand = 105.47 Inventory Turnover = 3.46 7 Marks 9 Marks d) Analyze and compare the performance of the two companies using at least two ratios from each category. (The analysis is not expected to exceed 250 words). 1 Mark