Santa Toys Limited is a medium sized corporation that just went public and is in the business of making specialty toys. Of the 3,000,000 common shares outstanding, 1,800,000 are owned by Kris Kringle1 . Over the last ten years Santa Toys has grown significantly and would now like to get into the on-line ordering and shipping business. As a result, they are looking to invest in a trucking line that would fit their delivery needs. They think they would like to start with the purchase of about ten trucks and a shipping warehouse. The controller of Santa Toys recently found a trucking company that went bankrupt, and they also have a warehouse, which isnt too far from their current operations. To make an offer, Santa Toys is looking for outside investments that would raise the capital needed to purchase the trucks and building. The controller of Santa Toys would like to issue bonds, the rest might have to be taken out via a loan or equity. The purchase price for the trucks and building is $2,500,000 with the building accounting for 80% of this purchase price. There will be some key safety items to be installed on the trucks before they can be used and this amounts to $20,000. The controller figures the whole research and work that he has had to do to get this purchase probably amounted to a week of his time or $10,000. The building has an expected life of 25 years and the trucks 15 years. To raise capital, Santa Toys will issue a total of $600,000, in $1,000, 3%, 10-year bonds. The bonds pay annual interest on January 1 st of each and would be sold for 98. We will need some help on how to record the bond on our books as well as the interest and any bond premium or discount amortization. Kris said. To assist Kris and the controller in understanding, assume the bonds are sold on January 1st and record the sale of the bonds and the December 31st yearend journal entry. He also wants to know what 98 means. Issuing the bonds wont be enough to finance the purchase, so Santa Toys will have to take out a bank loan or issue common shares. The controller isnt sure which one is better and has asked you to explain the differences between the two and what some of the advantages and disadvantages are. Assuming Santa Toys take out a loan at 3% interest over 15 years, Kris would like you to prepare the journal entry for the purchase of the building and the used trucks. He would also like you to prepare the journal entry for the year end recording of amortization and interest accrual on the loan. Assume the first loan payment doesnt happen for two years and that interest is paid to the bank on January 2nd of each year. Kris is also wondering about how dividends work in the financial statements. What are they really? He goes further by saying Say I declare dividends of $50,000 and I have income for the year of $230,000 and my opening retained earnings was $123,000. What does that do to my yearend figures? As Santa Toys enters its 11th millennium of business, it is wondering about the best way to track all the toy inventory. Currently the Elves (employees) do a manual inventory count every January after busy season and then adjust inventory. Kris is finding it hard to track everything now with the kids wanting so much. He is wondering what your thoughts are on how to account for his inventory on an ongoing basis. He wants you to be specific to his company generic responses are not going to be nice! You, CPA are the recently hired analyst for Santa Toys. As your first task, Kris has asked you to prepare a report that responds to the questions he and his controller have.

Prepare ALL the information asked by Kris.