SOLUTIONS M7 1 a b a b Income Statement Balance Sheet Assets Liabilities Stockholders Equity Net income Revenues Expenses December 1 2019 Cash Unearned 25 800 Rent Revenue 25 800 Each month end Unearned Rent Rent Revenue Revenue 8 600 8 600 December 1 2019 1 Dr Cash 25 800 Cr Unearned Rent Revenue 25 800 To record the receipt a three month advance rent payment Each month end 2 Dr Unearned Rent Revenue 8 600 Cr Rent Revenue 8 600 To record a reduction in the liability account for rent earned each month Balance Sheet Income Statement Assets Liabilities Stockholders Equity Net income Revenues Expenses Wages Payable Wages 102 000 Expense Withholding Liabilities accounts as shown in the entry 143 000 10 000 25 000 6 000 Dr Wages Expense 143 000 Cr Wages Payable or Accrued Payroll 102 000 Cr FICA Taxes Withheld 10 000 Cr Income Taxes Withheld 25 000 Cr Medical Insurance Contributions 6 000 To record accrued payroll M7 2 M7 3 a b Warranty Expense 6 500 000 sales 1 5 estimated warranty expense 97 500 Estimated Warranty Liability 1 1 19 balance 25 000 Less Actual warranty costs during 2019 Add Warranty Expense accrued during 2019 97 500 Estimated Warranty Liability 12 31 19 balance 34 400 Solving for the missing amount the actual costs of servicing products under warranty during the year 25 000 97 500 34 400 88 100 M7 4 a Annual interest payment 60 million 7 4 200 000 b The bonds were issued at a discount because market interest rates were more than the stated rate when the bonds were issued The higher the discount rate i e the market interest rate the lower the present value of cash flows for interest payments and principal i e the lower the bond s selling price c Interest expense will be more than the interest paid because the amortization of bond discount will increase interest expense M8 1 a b c a Income Statement Balance Sheet Assets Liabilities Stockholders Equity Net income Revenues Expenses January 1 2019 to record stock issuance Cash Common Stock 1 680 000 140 000 Additional Paid In Capital 1 540 000 December 31 2019 to record the declaration of dividends Dividends Retained Payable Earnings 280 000 280 000 February 7 2020 to record the payment of dividends Cash Dividends 280 000 Payable 280 000 January 1 2019 Dr Cash 140 000 shares 12 1 680 000 Cr Common Stock 140 000 shares 1 per share 140 000 Cr Additional Paid In Capital 140 000 11 1 540 000 To record stock issuance b December 31 2019 Dr Retained Earnings 280 000 Cr Dividends Payable 280 000 To record the declaration of dividends c February 7 2020 Dr Dividends Payable 280 000 Cr Cash 280 000 To record the payment of dividends M8 2 M8 3 M8 4 a b Preferred dividends for 2018 2019 and 2020 would have to be paid before a dividend on the common stock could be paid Annual dividend 6 5 x 100 per share x 275 000 shares 1 787 500 Dividends for 3 years 3 x 1 787 500 5 362 500 a A 4 for 1 split means that for every share now owned the stockholder will own 4 shares Thus I will own 3 600 shares x 4 14 400 shares b Because there are now 4 times as many shares of stock outstanding and the financial condition of the company hasn t changed the market price per share should be one fourth 1 4 of what it was or 68 4 17 per share The total market value of my investment will not have changed c The par value per share is also likely to be divided by 4 i e from 10 to 2 50 but this does not happen automatically any changes in par value per share require action by the board of directors Income Statement Balance Sheet Assets Liabilities Stockholders Equity Net income Revenues Expenses April 10 2019 to record the purchase of 1 800 shares of treasury stock 23 per share Cash Treasury Stock 41 400 41 400 September 28 2019 to record the sale of 700 shares of treasury stock 26 per share Cash Treasury Stock 18 200 16 100 Additional Paid in Capital 2 100 a April 10 2019 Dr Treasury Stock 41 400 Cr Cash 41 400 To record the purchase of 1 800 shares of treasury stock 23 per share b September 28 2019 Dr Cash 700 shares 26 18 200 Cr Treasury Stock 700 shares 23 16 100 Cr Additional Paid In Capital 700 shares 3 2 100 To record the sale of 700 shares of treasury stock 26 per share SOLUTIONS M10 1 M10 2 M11 1 Originally reported EPS for 2019 5 80 Divided by 4 to reflect 4 for 1 stock split EPS for 2019 as restated in 2020 1 45 EPS for 2019 as restated in 2020 annual report 1 05 Multiply by 3 to reflect 3 for 1 stock split originally reported EPS for 2019 3 15 Proof Originally reported EPS for 2019 3 15 Divided by 3 to reflect 3 for 1 stock split EPS for 2019 as restated in 2020 1 05 Cash 16 000 Accounts receivable 44 000 Merchandise inventory 60 000 Total current assets 120 000 Accounts payable 30 000 Wages payable 10 000 Total current liabilities 40 000 a b c Working capital CA 120 000 CL 40 000 80 000 Current ratio CA 120 000 CL 40 000 3 0 Acid test ratio CA 120 000 Inventory 60 000 CL 40 000 1 5 M11 2 a Inventory turnover Cost of goods sold average inventories 233 600 73 000 3 2 times b Number of days sales in inventory Inventory at year end Average day s cost of good sold 78 400 640 122 5 days Average day s cost of goods sold Annual cost of good sold 365 233 600 365 640 Accounts receivable turnover Sales average accounts receivable 292 000 14 600 20 times Number of days sales in accounts receivable Accounts receivable at year end Average day s sales 16 000 800 20 days Average day s sales Annual sales 365 292 000 365 800 M11 3 a Margin Net income Sales 60 000 400 000 15 Turnover Sales Average total assets 400 000 1 000 000 0 4 ROI Margin Turnover 15 0 4 6 or ROI Net income Average total assets 60 000 1 000 000 6 ROE Net income Average total stockholders equity 60 000 600 000 10 Price earning ratio Market price per share earnings per share 96 00 6 00 16 0 Dividend payout ratio Dividends per share earnings per share 2 40 6 00 40 Dividend yield Dividends per share market price per share 2 40 96 2 5 c d b c d e M11 4 a Debt ratio Total liabilities Total liabilities and stockholders equity 280 000 400 000 70 Total liabilities and stockholders equity at year end Total assets at year end which was given as 400 000 Total stockholders equity at year end …