Question

On January 1, 2021, the general ledger of Grand Finale Fireworks includes the following account balances: Credit Debit $ 42,800 44,700 7,600 65,000 Accounts Cash Accounts Receivable Supplies Equipment Accumulated Depreciation Accounts Payable Common Stock, $1 par value Additional Paid-in Capital Retained Earnings Totals $ 9, 100 14,700 11,000 81,000 44,300 $160,100 $160,100 During January 2021, the following transactions occur: January 2 Issue an additional 2,000 shares of $1 par value common stock for $40,000. January 9 Provide services to customers on account, $14,000. January 10 Purchase additional supplies on account, $5,000. January 12 Purchase 1,100 shares of treasury stock for $19 per share. January 15 Pay cash on accounts payable, $16,600. January 21 Provide services to customers for cash, $49,200. January 22 Receive cash on accounts receivable, $16 January 29 Declare a cash dividend of $0.40 per share to all shares outstanding on January 29. The dividend is payable on February 15. (Hint: Grand Finale Fireworks had 11,000 shares outstanding on January 1, 2021, and dividends are not paid on treasury stock.) January 30 Resell 800 shares of treasury stock for $21 per share. January 31 Pay cash for salaries during January, $42,100.

Answer 1

Q1 ) Journal entries :

Amount in $   

date	Particulars	Debit	Credit
02/01/2021	Bank a/c	40000
	To common stock a/c(2000 * $1)		2000
	To Paid in capital in excess of par a/c($40000-2000)		38000
	(Being entry made for stock issued)
09/01/2021	Account receivable a/c	14000
	To Sale of services a/c		14000
	(being services provided to customer on account)
10/01/2021	Supplies a/c	5000
	To account payable a/c		5000
	(being additional supplies purchased on account)
12/01/2021	Treasury stock a/c	20900
	To bank a/c		20900
	(being treasury stock purchased)
15/01/2021	accounts payable a/c	16600
	to bank a/c		16600
	(being cash paid to accounts payable)
21/01/2021	Bank a/c	49200
	To sale of services		49200
	(being sale of services made for cash)

date	Particulars	Debit	Credit
22/01/2021	Bank a/c	16700
	To accounts receivable		16700
	(being cash received from accounts receivable)
29/01/2021	Dividend a/c (13000 x $0.4)	5200
	To dividend payable a/c (13000 x $0.4)		5200
	(being dividend declared)
30/01/2021	Bank a/c(800 x 21)	16800
	To treasury stock (800 x 19)		15200
	To profit on sale of treasury stock( 800 x (21-19))		1600
	(Being treasury shares sold for profit)
31/01/2021	Salaries a/c	42100
	To Bank a/c		42100
	(being salaries paid for January)
31/01/2021	Utilities a/c	6300
	To accounts payable		6300
	(being utilities payable)
31/01/2021	supplies expense a/c	5200
	to supplies a/c		5200
	(being supplies expense accounted)

date	Particulars	Debit	Credit
31/01/2021	Depreciation a/c (65000-10100)/36	1525
	to Accumulated depreciation		1525
	(being depreciation expense accounted)
31/01/2021	income tax a/c	2100
	to income tax payable		2100
	(being income tax payable accounted )
31/01/2021	sale of services	63200
	Profit on sale of treasury stock	1600
	to Income statement		64800
	(being revenue transfer to income statement)
31/01/2021	Income statement a/c	57225
	to salaries a/c		42100
	to utilities a/c		6300
	to supplies expense a/c		5200
	to depreciation a/c		1525
	to income tax a/c		2100
	(Being expense transfer to income statement)
31/01/2021	Retained earnings a/c	5200
	to dividend		5200
	(being dividend transfer to retained earnings)
31/01/2021	Income statement	7575
	to retained earnings		7575
	(profit transfer to retained earnings)

Q2)

Return on equity = net profit after tax x 100

  equity share holder funds

= 7575 x 100

(11000+81000+44300+40000)

= 4.3%

the company is more profitable than other companies in the same industry since its return on equity is more than return on equity of other companies (2.4%).

Q3)

common shares outstanding = Opening stock + issued during current month

= 11000 + 2000

= 13000

Q4) Earnings per share = Profit after tax

average no of shares outstanding

= 7575

   (11000+13000)/2

= 7575 / 12000

= $ 0.63

Earnings per share of january month is better than the last year average $ 0.2 per month