After looking into debt financing through notes, mortgage, and bonds payable, Corvallis Canoe Company decides to raise additional capital for the planned business expansion. The company will be able to acquire cash as well as land adjacent to its current business location. Before the following transactions, the balance in Common Stock on January 1, 2018, was $136,000 and included 136,000 shares of common stock issued and outstanding. (There was no Paid-In Capital in Excess of Par—Common.) Corvallis Canoe Company had the following transactions in 2019: Jan. 1 Issued 50,000 shares of $1 par value common stock for a total of $200,000. 10 Issued 20,000 shares of 4%, $3 par value preferred stock in exchange for land with a market value of $67,000. Dec. 15 Declared total cash dividends of $15,000. 20 Declared an 8% common stock dividend when the market value of the stock was $4.50 per share. 31 Paid the cash dividends. 31 Distributed the stock dividend. Requirements Update the stockholders’ equity section of the balance sheet as of December 31, 2019 with the additional information given in the transactions provided just above. There was no preferred stock issued prior to the 2019 transactions. I need question 3 please
Corvallis Canoe Company is a service company that rents canoes and kayaks for use on local lakes and rivers. The company was started by Lucy and Ricky, who met in college while suffering through accounting. Because they both love the outdoors, they started a business that combined their love of outdoor activities with their business expertise. Thus, Corvallis Canoe Company began operations on November 1, 2018. After the first two months in operation, Corvallis Canoe Company had a decent net income of $4,970, and they could afford to hire you as their accountant. Pleased with the growth of their company, Lucy and Ricky decided to invest their temporary excess cash in a brokerage account. The company had the following securities transactions in 2019:
|
Jul. 1 |
Purchased 8,000 shares in Adobe Outdoor Adventure Company for $3 per share. Corvallis Canoe does not have significant influence over Adobe. |
|
7 |
Purchased 35% of the stock of Bison Backpacks consisting of 43,750 shares of stock (out of a total of 125,000 shares) for $5 per share. Corvallis Canoe does have significant influence over Bison. |
|
10 |
Purchased a bond from Camelot Canoes with a face value of $80,000, paying semiannual interest on June 30 and December 31. Corvallis Canoe intends to hold the bond to maturity. |
|
Sep. 30 |
Received dividends of $0.15 per share from Adobe. |
|
Nov. 1 |
Received dividends of $0.30 per share from Bison. |
|
Dec. 31 |
Received an interest payment of $3,200 from Camelot Canoes. |
|
31 |
Bison Backpacks reported net income of $30,000 for the year. |
|
31 |
Adjusted the Adobe stock for a market value of $2.98 per share. |
The effect on Corvallis Canoe Company’s net income for each of the three investments is as follows:
Calculations:
Cost of investments:
|
Total cost |
= |
Number of shares |
× |
Price per share |
|
|
|
Adobe |
= |
8,000 shares |
× |
$3 per share |
= |
$ 24,000 |
|
Bison |
= |
43,750 shares |
× |
$5 per share |
= |
218,750 |
Cash dividends:
|
Total dividends |
= |
Number of shares |
× |
Dividend per share |
|
|
|
Adobe |
= |
8,000 shares |
× |
$0.15 per share |
= |
$ 1,200 |
|
Bison |
= |
43,750 shares |
× |
$0.30 per share |
= |
13,125 |
Share of net income:
|
Revenue from investment |
= |
Reported net income |
× |
Percent ownership × Number of Months Held 12 |
|
Bison |
= |
$30,000 |
× |
35% × 6/12
|
|
|
= |
$5,250 |
|
|
Unrealized holding loss:
|
Unrealized holding loss |
= |
Total fair value |
− |
Total cost |
|
Adobe |
= |
(8,000 shares × $2.98 per share) |
− |
$24,000 |
|
|
= |
$23,840 |
− |
$24,000 |
|
|
= |
$160 |
|
|
|
Investment |
Account |
Effect on Income |
|
|
Adobe |
Dividend Revenue |
$ 1,200 |
|
|
|
Unrealized Holding Loss—Equity Investment |
(160) |
|
|
|
|
$ 1,040 |
Increase |
|
|
|
|
|
|
Bison |
Revenue from Investments |
$ 5,250 |
Increase |
|
|
|
|
|
|
Camelot |
Interest Revenue |
$ 3,200 |
Increase |
|
|
|
|
|
Lucy and Ricky are continuing their analysis of the company’s position and believe they will need to borrow $15,000 to expand operations. They consult Rivers Credit Union and secure a 6%, one-year note on September 1, 2019, with interest due at maturity.
Corvallis Canoe Company is considering raising even more capital for further expansion. Lucy and Ricky want to expand into guided trips on the Willamette River. Additionally, they want to add another building on their land to offer more services for local customers.
|
Date |
Interest Expense |
|
Jun. 30 |
$ 8,002 |
|
Dec. 31 |
8,002 |
|
Dec. 31 |
36,000 |
|
Totals |
$ 52,004 |
Corvallis Canoe Company plans to raise the capital needed for this expansion by issuing $210,000 of 7.5%, six-year bonds on January 2, 2019. The bonds pay interest semiannually on June 30 and December 31. The company issued the bonds at a discount and received $208,476.
The company also issued a mortgage payable for $450,000 on January 2, 2019. The proceeds from the mortgage will construct the new building. The mortgage requires annual payments of $45,000 plus interest for ten years, payable on December 31. The mortgage interest rate is 8%.
After looking into debt financing through notes, mortgage, and bonds payable, Corvallis Canoe Company decides to raise additional capital for the planned business expansion. The company will be able to acquire cash as well as land adjacent to its current business location. Before the following transactions, the balance in Common Stock on January 1, 2018, was $136,000 and included 136,000 shares of common stock issued and outstanding. (There was no Paid-In Capital in Excess of Par—Common.) Corvallis Canoe Company had the following transactions in 2019:
|
Jan. 1 |
Issued 50,000 shares of $1 par value common stock for a total of $200,000. |
|
10 |
Issued 20,000 shares of 4%, $3 par value |
|
Dec. 15 |
Declared total cash dividends of $15,000. |
|
20 |
Declared an 8% common stock dividend when the market value of the stock was $4.50 per share. |
|
31 |
Paid the cash dividends. |
|
31 |
Distributed the stock dividend. |
Requirements
- Update the
stockholders’ equity section of the balance sheet as of December 31, 2019 with the additional information given in the transactions provided just above. There was no preferred stock issued prior to the 2019 transactions.
I need question 3 please
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
