Question

Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, Year 1, were as follows:

Record on journal page 10:

Jan.	3	Issued 15,000 shares of $20 par common stock at $30, receiving cash.
Feb.	15	Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash.
May	1	Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually.
	16	Declared a quarterly dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held and 20,000 shares of preferred stock were outstanding. Journalize this transaction as two separate entries.
	26	Paid the cash dividends declared on May 16.
Jun.	1	Purchased 7,500 shares of Solstice Corp. at $40 per share plus a $150 brokerage commission. The investment is classified as an available-for-sale investment.
	8	Purchased 8,000 shares of treasury common stock at $33 per share.
	22	Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for $24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment.
	30	Declared a $1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued.
Jul.	11	Paid the cash dividends declared on Jun. 30 to the preferred stockholders.
Aug.	27	Received $27,500 dividend from Pinkberry Co. investment of Jun. 22.

Record on journal page 11:

Oct.	1	Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of $375. The bonds are classified as a held-to-maturity long-term investment.
	7	Sold, at $38 per share, 2,600 shares of treasury common stock purchased on Jun. 8.
	14	Received a dividend of $0.60 per share from the Solstice Corp. investment on Jun. 1.
	29	Sold 1,000 shares of Solstice Corp. at $45, including commission.
	31	Recorded the payment of semiannual interest on the bonds issued on May 1 and the amortization of the premium for six months. The amortization is determined using the straight-line method.
Dec.	31	Accrued interest for three months on the Dream Inc. bonds purchased on Oct. 1.
	31	Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income.
	31	The fair value for Solstice Corp. stock was $39.02 per share on December 31, Year 1. The investment is adjusted to fair value, using a valuation allowance account. Assume that Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero.

	Required:
1.	Journalize the selected transactions. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS
Equinox Products Inc.
General Ledger
ASSETS 110 Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 131 Merchandise Inventory 132 Interest Receivable 133 Prepaid Expenses 141 Investments-Solstice Corp. Stock 142 Investment in Pinkberry Co. Stock 143 Investments-Dream Inc. Bonds 144 Valuation Allowance for Available-for-Sale Investments 181 Store Buildings and Equipment 182 Accumulated Depreciation-Store Buildings and Equipment 183 Office Buildings and Equipment 184 Accumulated Depreciation-Office Buildings and Equipment 191 Goodwill LIABILITIES 211 Accounts Payable 221 Income Tax Payable 225 Cash Dividends Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Preferred Stock 312 Paid-in Capital in Excess of Par-Preferred Stock 321 Common Stock 322 Paid-in Capital in Excess of Par-Common Stock 331 Retained Earnings 341 Cash Dividends 351 Treasury Stock 352 Paid-in Capital from Sale of Treasury Stock 361 Unrealized Gain (Loss) on Available-for-Sale Investments	REVENUE 410 Sales 611 Dividend Revenue 621 Interest Revenue 631 Income of Pinkberry Co. investment 641 Gain on Sale of Investment EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 520 Sales Salaries Expense 521 Sales Commissions 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 537 Store Supplies Expense 538 Office Supplies Expense 539 Office Rent Expense 541 Income Tax Expense 551 Depreciation Expense-Store Buildings and Equipment 552 Depreciation Expense-Office Buildings and Equipment 591 Miscellaneous Selling Expense 592 Miscellaneous Administrative Expense 710 Interest Expense 731 Loss on Sale of Investment

Answer 1

Answer -

Credit Debit $450,000 Date Accounts Jan. 3 Cash Common stock Paid-in-capital in excess of par-Common stock $300,000 $150,000 $400,000 Feb. 15 Cash Preferred stock Paid-in-capital in excess of par-Preferred stock $320,000 $80,000 $520,000 May 1. Cash Bonds payable Premium on bonds payable $500,000 $20,000 $50,000 May 16. Cash dividends Cash dividends payable (Common stock) $50,000 $20,000 May 16. Cash dividends Cash dividends payable (Preferred stock) $20,000 May 26. Cash dividends payable Cash $70,000 $70,000 Jun. 1 Investments-Solstice Corp. stock Cash $300,150 $300,150 $264,000 Jun. 8 Treasury stock Cash $264,000 $960,000 Jun. 22 Investment in Pinkberry Co. stock Cash $960,000 $20,000 Jun. 30 Cash dividends Cash dividends payable $20,000 Jul. 11 Cash dividends payable Cash $20,000 $20,000 $27,500 Aug. 27 Cash Investment in Pinkberry Co. stock $27,500 Oct. 1 Investments-Dream Inc. bonds Interest receivable Cash $90,000 $375 $90,375 $98,800 Oct. 7 Cash Treasury stock Paid-in capital from sale of treasury stock $85,800 $13,000 $4,500 Oct. 14 Cash Dividend revenue $4,500 $45,000 Oct. 29 Cash Gain on sale of investment Investments-Solstice Corp. stock $4,980 $40,020 Oct. 31 Interest expense Premium on bonds payable Cash $11,500 $1,000 $12,500 $1,125 Dec. 31 Interest receivable Interest revenue $1,125 $76,800 Dec. 31 Investment in Pinkberry Co. stock Income from Pinkberry Co. $76,800 $7,500 Dec. 31 Valuation allowance for available for sale investments Unrealized gain (loss) on available for sale investment $7,500

Calculation:

Jan. 3:

Common stock = Issued shares * Par value per share

= 15000 shares * $20 per share

= $300000

Paid-in-capital in excess of par-Common stock = 15000 shares * ($30 - $20 per share)

= $150000

Cash = 15000 shares * $30 per share

= $450000

Feb. 15:

Preferred stock = Issued shares * Par value per share

= 4000 shares * $80 per share

= $320000

Paid-in-capital in excess of par-Preferred stock = 4000 shares * ($100 - $80 per share)

= $80000

Cash = 4000 shares * $100 per share

= $400000

May 1:

Cash = Bonds payable * (104 / 100)

= $500000 * (104 / 100)

= $520000

Premium on bonds payable = Cash - Bonds payable

= $520000 - $500000

= $20000

May 16:

Cash dividends (common stock) = Common stock outstanding * $0.50 per share

= 100000 shares * $0.50 per share

= $50000

Cash dividends (preferred stock) = Preferred stock outstanding * $1 per share

= 20000 shares * $1 per share

= $20000

May 26:

Cash dividends payable = Cash dividends payable (common stock) + Cash dividends payable (preferred stock)

= $70000 + $20000

= $50000

Jun. 1:

Investments-Solstice Corp. stock = (Purchases shares of Solstice Corp. * $40 per share) + Brokerage commission

= (7500 shares * $40 per share) + $150

= $300150

Jun. 8:

Treasury stock = 8000 shares * $33 per share

= $264000

Jun. 22:

Investment in Pinkberry Co. stock = Purchases shares of Pinkberry Corp. * $24 per share

= 40000 shares * $24 per share

= $960000

Jun. 30:

Cash dividends payable = Preferred stock outstanding * $1 per share

= 20000 shares * $1 per share

= $20000

Oct. 1:

Cash = Investments-Dream Inc. bonds + Interest receivable

= $90000 + $375

= $90375

Oct. 7:

Cash = 2600 shares * $38 per share

= $98800

Treasury stock = 2600 shares * $33 per share

= $85800

Paid-in capital from sale of treasury stock = Cash - Treasury stock

= $98800 - $85800

= $13000

Oct. 14:

Dividend revenue = Purchases shares of Solstice Corp. * $0.60 per share

= 7500 shares * $0.60 per share

= $4500

Oct. 29:

Cash = 1000 shares * $45 per share

= $45000

Investments-Solstice Corp. per share = [(Purchases shares of Solstice Corp. * $40 per share) + Brokerage commission] / Purchases shares of Solstice Corp.

= [(7500 shares * $40 per share) + $150] / 7500 shares

= $300150 / 7500 shares

= $40.02 per share

Investments-Solstice Corp. stock = 1000 shares * $40.02 per share

= $40020

Gain on sale of investment = Cash - Investments-Solstice Corp. stock

= $45000 - $40020

= $4980

Oct. 31:

Cash (interest semiannual) = Bonds payable * Interest rate * (6/12)

= $500000 * 5% * (6/12)

= $12500

Premium on bonds payable = ($20000 / 10 years) * (6/12)

= $1000

Interest expense = Cash - Premium on bonds payable

= $12500 - $1000

= $11500

Dec. 31:

Interest receivable (3 months) = Investments-Dream Inc. bonds * Interest rate * (3/12)

= $90000 * 5% * (3/12)

= $1125

Dec. 31:

Income from Pinkberry Co. = Total earnings * (Purchases shares of Pinkberry Corp. / Pinkberry Corp. shares outstandings)

= $240000 * (40000 shares / 125000 shares)

= $76800

Dec. 31:

Unrealized gain (loss) on available for sale investment = Purchases shares of Solstice Corp. * (Investments-Solstice Corp. per share - Fair value for Solstice Corp. per share)

= 7500 shares - (40.02 per share - $39.02 per share)

= $7500