Question

Prepare the Income Statement and Statement of Retained Earnings for the year 2019.

Prepare the classified Balance Sheet as of December 31, 2019.

 

Trademarks were previously acquired for $200,000 on January 1, 2018. Estimated useful life at the time of acquisition was 20 years.

In 2019 there was litigation challenging these trademarks brought by a competitor and GeneralProducts successfully

defended these trademarks at a legal cost of $45,000. The new (updated) useful life of the trademarks was estimated to be 25 years from the date of acquisition.

All sales were on credit and totaled $940,560. COGS totaled $780,650.

Included in the total sales of $940,560 were the sales of 6,000 soap powder boxes.

As a premium offer to increase soap powder sales, GeneralProducts includes one special coupon with every soap powder box. Customers can redeem 4 coupons

to obtain one free premium item, a kitchen utensil.  Based on past experience, 60% of the coupons are expected to be redeemed by customers.

During 2019, 3,400 coupons were actually redeemed. Also in 2019, GeneralProducts purchased

an additional 1,000 premiums (kitchen utensil items) @ $1.10 each on credit to add to its Inventory of Premiums.

5-year 6% bonds were issued on January 1, 2018, sold to yield 8% interest. Interest is paid semiannually on January 1 and June 30 for these bonds.

Maturity value of the bond issue is $100,000 and the issue was sold at a discount of $8,111 for an initial carrying value of $91,889.

The bond indenture indicated that GeneralProducts may later call and redeem these bonds @101 any time after June 30, 2019.

These bonds were subsequently called and redeemed on September 1, 2019, following the sale of a new 5% bond issue

taking advantage of lower interest rates (see Item 5 below). The effective-interest method is applied to amortize the discount.

To take advantage of lower interest rates and to finance the call and redemption of the previously issued 6% bonds @ 101,

on September 1, 2019, GeneralProducts issued new 5% bonds with face value of $100,000 to yield 6%.

The maturity period of these new 5% bonds is 10 years and interest is paid semiannually on January 1 and June 30.

The new 5% bonds were issued at a discount of $7,438 for an initial carrying value of $$92,562 on July 1, 2019.

The effective-interest method is applied to amortize the discount.

Selling and Administrative Expenses excluding non-cash items totaled $87,345. PP&E is depreciated using the straight-line method over 25 years of life.

Cash collected from customers totaled $906,450.

Cash paid to suppliers for credit purchases totaled $728,254.

Purchases of inventory totaled $689,525. All purchases were on credit.

GeneralProducts purchased land for $30,000 in advance of construction of a building and paid in full.

> 2018 Balance sheet
Current Assets
Cash 11,980
Accounts Receivable 20,520
Inventory 317,060
Inventory of Premiums (@$1.10 per premium item) 660
Total Current Assets 350,220
Long-Term Assets
Investments 66,775
Property, Plant and Equipment (PP&E) 750,000
Less: Accumulated Depreciation (90,000) 660,000
Total Long-Term Assets 726,775
Intangible Assets
Trademarks 190,000
Total Assets 1,266,995

LIABILITIES
Current Liabilities
Accounts Payable 50,722
Liability for Premiums 550
Interest Payable (on 6% Bonds) 3,000
Total Current Liabilities 54,272
Long-Term Liabilities
6% Bonds Payable (due 2023) 100,000
Unamortized Discount on Bonds Payable (6,732)
Total Long-Term Liabilities 93,268
Total Liabilities 147,540

STOCKHOLDERS' EQUITY
Common Stock
(150,000 shares authorized, par value $1,
130,000 shares issued and outstanding) 130,000
Paid-in Capital in Excess of Par - Common Stock 954,000
Retained Earnings 35,455
Total Stockholders' Equity 1,119,455

Total Liabilities and Stockholders' Equity 1,266,995

Answer 1

Balance Sheet

Balance Sheet
December 31,2018	2,019.0	2,019.0	2,019.0
ASSETS	USD	USD	USD
Current Assets
Cash		12,393.0
Account Receivable		54,630.0
Inventory		225,935.0
Inventory of Premiums		825.0
Total Current Assets			293,783.0
Long Term Assets
Investment		66,775.0
Property, Plant and Equipment	780,000.0
Less: Accumlated Depreciation	(120,000.0)	660,000.0
Total LongTerm Assets			726,775.0
Intangible Assets
TradeMark			225,400.0
Total Assets			1,245,958.0
LIABILITIES
Current Liabilities
Accounts Payable		13,093.0
Liability for premium		550.0
Interest Payable		2,500.0
Total Current Liabilities			16,143.0
Long Term Liabilities
6% Bonds Payable		-
Unamortized Discount on Bonds Payable		-	-
5% Bonds Payable		100,000.0
Unamortized Discount on Bonds Payable		(7,161.1)	92,838.9
Total Liabilities			108,981.9
Equity		-
Common Stock		130,000.0
Additional Paid in Capital		954,000.0
Retained Earnings		52,976.1
Total Stock Holder's Equity			1,136,976.1
			1,245,958.0

Particulars	USD	USD
Revenue		940,560.00
Cost of Goods Sold		780,650.00
Gross Profit		159,910.00
Other Operating Expenses
Selling and Administrative Expeses	87,345.00
Trade Mark Amortization	9,600.00
Marketing Expense - Premium Item	935.00
Interest on Bond	6,500.00
Premium on Bond Redemption	1,000.00
Depreciation Expense	30,000.00
Discount On Bond Amortised	7,008.86
Total Expenses		142,388.86
Net Profit		17,521.14

Statement of Retained Earnings
Opening Retained Earnings	35,455.00
Profit for the year	17,521.14
Closing Retained Earnings	52,976.14

Cash Statement
	Cash Opening Bal		11,980.00
1.00	Litigation Cost Paid	(45,000.00)
7.00	Cash from Debtors	906,450.00
8.00	Cash paid to Suppliers	(728,254.00)
4.00	Interest on Bond Paid Jun 2019	(3,000.00)
4.00	Interest on Bond Paid Jan 2019	(3,000.00)
4.00	Redemption of 6% Bond	(100,000.00)
4.00	Accrued Interest 2019 Paid 6% Bond	(2,000.00)
5.00	Proceeds from New Bond	92,562.00
6.00	Selling and Admin Expenses	(87,345.00)
10.00	Land Purchased	(30,000.00)	413.00
			12,393.00

Bond Discount Amortization Table
Year	Interest Payment	Interest Expense	Amortization of Bond Discount	Debit Bal in Bond Disc	Credit Bal in Bonds Payable	Book Value of the Bond
0				7,438.00	100,000.00	92,562.00
1	2,500.00	2,776.86	276.86	7,161.14	100,000.00	92,838.86
2	2,500.00	2,785.17	285.17	6,875.97	100,000.00	93,124.03