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 Accounts Receivable Prepaid Insurance Inventory Property, Plant & Equipment Accumulated Depreciation Holister Electric Inc. Balance Sheet As at December 31, 2020 Liabilities $25,530 Accounts Payable 17,500 Unearned Revenue 8,100 Bank Loan 66,500 Total Liabilities 190,000 Shareholders' Equity -35,000 Common Shares - 80,000 issued Retained Earnings Total Shareholder's Equity $272,630 Liabilities & Owner's Equity $27,800 7,500 30,000 65,300 80,000 127,330 207,330 $272,630 Total Assets At 2020, Razul has authorized 140,000 common shares and 8,000 preferred shares. The preferred shares will be cumulative and pay $6 dividends. The 80,000 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 15,000 shares in Gregor Inc. for $12 per share. This represents 33% of Gregor Inc. common shares. On December 31, Gregor Inc. declares and pays a $90,000 dividend and reports a net income of $320,000. 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 40,000 common shares for $100,000 cash and issued 6,500 preferred shares for $26,000 cash. c) On March 1, Holister Electric Inc. issued and sold $260,000, 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 23, $1,500 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 8%, payable annually at March 31. On December 31, 2021, each bond was trading in the market at $1,800. On January 1, 2022, all bonds were sold for $46,100 e) On July 1, Holister purchased a $65,500, 7 year bond paying 12%. 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 3,200 shares of Daenerys Inc. at $24 per share for the purpose of trading. The shares are less than 8% of the total shares of Daenerys Inc. and are a non-strategic investment. By December 31, the price per share had gone up to $26 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 $75,000, which will be paid out on December 15, 2021. Use the cash dividends method and close cash dividends at the end of the year. 38 Marks 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. 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 DR CR Jan 1 Account Title and Explanation Investment in Gregor Inc. Shares Cash To record purchase of 15,000 shares of Gregor Inc. common shares $180,000 TRUE TRUE $180,000 31-Dec $105,600 TRUE Investment in Gregor Inc. Shares Revenue from Investment in Gregor Inc. To record 33% profit on equity investment in Gregor Inc. $105,600 TRUE 31-Dec $29,700 Cash Investment in Gregor Inc. Shares To record dividends received on equity investment in Gregor Inc. TRUE TRUE $29,700 1-Jan $126,000 TRUE TRUE Cash Common Shares Preferred Shares To record issue of common and preferred shares for cash 100,000 $26,000 TRUE 1-Mar 272,405 Cash Discount on Bonds Payable Bonds Payable To issue bonds at discount 12,405 note: your bond 260,000 TRUE Apr 1 cash 34,500 TRUE 34,500 TRUE short term Bonds To record short-term bonds at par 1-Jul 65,500 Investment in 7 years Bonds Cash To record Bonds purchased for 7 years TRUE TRUE 65,500 23-Nov 76,800 TRUE Investment for shares of Daenerys Inc. Cash To record purchase of shares of Daenerys Inc. (3200*24) 76,800 TRUE 23-Nov 76,800 TRUE Investment for shares of Daenerys Inc. Cash To record purchase of shares of Daenerys Inc. (3200*24) 76,800 TRUE 30-Nov 75,000 Retained Earning Dividens payable To recored declared Divideds