Question

[The following information applies to the questions displayed below.] On January 1, 2018, 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 $ 9,100 14,700 11,000 81,000 44,300 Totals $160,100 $160,100 During January 2018, 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 Repurchase 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, $16,700. 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, 2018 and dividends are not paid on treasury stock.) January 30 Reissue 800 shares of treasury stock for $21 per share. January 31 Pay cash for salaries during January, $42,100.

3. Prepare an adjusted trial balance as of January 31, 2018.

4. Prepare a multiple-step income statement for the period ended January 31, 2018.
5. Prepare a classified balance sheet as of January 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)

6. Record closing entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1. Record the closing entry for revenue accounts. 2. Record the closing entry for expense accounts. 3. Record the closing entry for dividend account.
7. Analyze the following for Grand Finale Fireworks:
a-1. Calculate the return on equity for the month of January. a-2. If the average return on equity for the industry for January is 2.4%, is the company more or less profitable than other companies in the same industry?
b. How many shares of common stock are outstanding as of January 31, 2018?

c-1. Calculate earnings per share for the month of January. (Hint: To calculate average shares of common stock outstanding take the beginning shares outstanding plus the ending shares outstanding and divide the total by 2.) c-2. If earnings per share was $2.40 last year (i.e., an average of $0.20 per month), is earnings per share for January 2018 better or worse than last year’s average?

Answer 1

Credit Calculation Grand Finale Fireworks Date Account Title 2-Jan Cash Common Stock, $1 par value Additional paid in capital Debit 40,000 2,000 =2,000*1 38,000 14,000 9-Jan Accounts Receivable Service Revenue 14,000 5,000 10-Jan Supplies Accounts Payable 5,000 20,900 =1,100*19 12-Jan Treasury Stock Cash 20,900 16,600 15-Jan Accounts Payable Cash 16,600 49,200 21-Jan Cash Service Revenue 49,200 16,700 22-Jan Cash Accounts Receivable 16,700 4,760 =(11,000+2,000-1,100) *0.40 29-Jan Dividends Dividend Payable 4,760 16,800 30-Jan Cash Treasury Stock Paid in capital from Treasury Stock =800*21 15,200 =800*19 1,600 =16,800-15,200 42,100 42,100 31-Jan Salaries expense Cash Req 2 Adjusting entries 31-Jan Utilities expense Utilities Payable 6,300 6,300 7,400 =7,600+5,000-5,200 31-Jan Supplies expense Supplies 7,400 1,525 =(65,000-10,100)/3*1/12 31-Jan Depreciation expense Accmulated Depreciation 1,525 2,100 2,100 31-Jan Income tax expense Income tax Payable Req6 Closing entries 31-Jan Service Revenue Retained Earnings 63,200 63,200 59,425 31-Jan Retained Earnings Salaries expense Utilities expense Supplies expense Depreciation expense Income tax expense 42,100 6,300 7,400 1,525 2,100 4,760 31-Jan Retained Earnings Dividends 4,760

Date Credit Grand Finale Fireworks T Accounts Date Debit Date Credit Cash Op bal $ 42,800 12-Jan $ 20,900 2-Jan $ 40,000 15-Jan $ 16,600 21-Jan $ 49,200 31-Jan $ 42,100 22-Jan $ 16,700 30-Jan $ 16,800 Date Debit Date Credit Accounts Receivable Op bal $44,700 9-Jan $ 14,000 22-Jan $ 16,700 Date Debit Date Credit Supplies Op bal $ 7,600 10-Jan $ 5,000 31-Jan $ 7,400 Debit Date Equipment $ 65,000 Op bal Bal. Bal. Bal. $ 85,900 Accmulated Depreciation Op bal $9,100 31-Jan $ 1,525 Bal. $ 42,000 Accounts Payable 15-Jan $ 16,600 Op bal $14,700 10-Jan $ 5,000 $ 5,200 Dividend Payable 29-Jan $ $ 65,000 Utilities Payable 31-Jan $ 6,300 4,760 Bal. $ 10,625 Income tax Payable 31-Jan $ 2,100 Bal. $ 3,100 Common Stock, $1 par value Op bal $11,000 2-Jan $ 2,000 Bal. $ 4,760 Additional paid in capital Op bal $ 81,000 2-Jan $ 38,000 $ 6,300 Paid in capital from Treasury Stock 30-Jan $ 1,600 $13,000 $ 119,000 Bal. $ 1,600 Bal. $ 2,100 Treasury Stock 12-Jan $ 20,900 30-Jan $ 15,200 Bal. Retained Earnings Op bal Bal. Dividends $ 4,760 $44,300 29-Jan Bal. Bal. $ 44,300 $ 5,700 Service Revenue 9-Jan $ 14,000 21-Jan $ 49,200 Salaries expense 31-Jan $ 42,100 Bal. $ 4,760 Utilities expense 31-Jan $ 6,300 Supplies expense 31-Jan $ 7,400 Bal. $ 6,300 Bal. $ 7,400 Bal. $63,200 Depreciation expense 31-Jan $ 1,525 Bal. $ 42,100 Income tax expense 31-Jan $ 2,100 Bal. $ 1,525 Bal. $ 2,100

Grand Finale Fireworks Account Names Cash Accounts Receivable Supplies Equipment Accmulated Depreciation Accounts Payable Dividend Payable Utilities Payable Income tax Payable Common Stock, $1 par value Additional paid in capital Paid in capital from Treasury Stock Treasury Stock Retained Earnings Dividends Service Revenue Salaries expense Utilities expense Supplies expense Depreciation expense Income tax expense Totals Req3 Adjusted TB Debit Credit 85,900 42,000 5,200 65,000 10,625 3,100 4,760 6,300 2,100 13,000 119,000 1,600 5,700 44,300 4,760 63,200 42,100 6,300 7,400 1,525 2,100 267,985 267,985

63,200 63,200 Grand Finale Fireworks Multistep Income Statement For the month ended Jan 31, 2018 Service Revenue Total Revenue Operating Expenses Salaries expense Utilities expense Supplies expense Depreciation expense Total Operating Expenses Net income before taxes Income tax expense Net income 42,100 6,300 7,400 1,525 57,325 5,875 2,100 3,775 Retained Earnings Statement For the month ended Jan 31, 2018 Retained Earnings, Jan 1, 2018 Add: Net income Less: Dividends Retained Earnings, Jan 31, 2018 44,300 3,775 (4,760) 43,315

Grand Finale Fireworks Balance Sheet As of Jan 31, 2018 Assets Current Assets Cash Accounts Receivable Supplies Total Current Assets 85,900 42,000 5,200 133,100 Property, Plant & Equipment Equipment Accumulated Depreciation Total Property, Plant & Equipment Total Assets 65,000 (10,625) 54,375 187,475 Liabilities & Stockholders Equity Current Liabilities Accounts Payable Dividend Payable Utilities Payable Income tax Payable Total Current Liabilities 3,100 4,760 6,300 2,100 16,260 13,000 119,000 1,600 Stockholders Equity Common Stock, $1 par value Additional paid in capital Paid in capital from Treasury Stock Total Paid in Capital Retained Earnings Subtotal Less: Treasury Stock Total Stockholders Equity Total Liabilities & Stockholders Equity 133,600 43,315 176,915 (5,700) 171,215 187,475

Analysis a1 Equity Stockholders Equity 1-Jan 136,300 Calculation 31-Jan 1-Jan 171,215 =11,000+81,000+44,300 = 136,300 Return on equity Net Income / Average Stockholders Equity =3,775 / ((136,300 + 171,215)/2)*100 2.46% Return on equity a2 Company is more profitable with a higher return on equity of 2.46% as compared to industry standard of 2.40%. Date Common shares outstanding as of Jan 31, 2018 No of shares 1-Jan-18 Common stock outstanding 11,000 2-Jan-18 Common stock issued 2,000 12-Jan-18 Treasury Stock repurchased (1,100) 30-Jan-18 Treasury Stock reissued 800 31-Jan-18 Common stock outstanding 12,700 shares c1 Earnings per share Earnings per share Net income/ Weighted average common shares Outstanding =3,775/((11,000+ 12,700)/2) 0.32 per share Earnings per share EPS of $0.32 per share for Jan 2018 is better than last year's average of $0.20 per month