Part 1 Grindstone Paving started selling products to customers in 2017 in additi
ID: 2585976 • Letter: P
Question
Part 1 Grindstone Paving started selling products to customers in 2017 in addition to offering paving services. In 2018, the company also started to offer landscaping services. Currently, the owner (John) owns all the shares in the corporation. To raise the needed cash, John decides to offer common and preferred stock for sale to investors starting in 2018. Below is he balance sheet at the end of 2017 Grindstone Paving Inc. Balance Sheet As at December 31, 2017 Assets Cash Accounts Receivable Prepaid Insurance nventory Property, Plant & Equipment Accumulated Depreciation $121,000 25,500 7,200 5,000 55,000 32,000 Liabilities Accounts Payable Unearned Revenue Bank Loan Total Liabilities Stockholders' Equity Common Stock 60,000 issued Retained Earnings Total Stockholders' Equity Liabilities & Stockholders' Equity $21,000 9,000 17.700 47,700 60,000 74 34 Total Assets $181,700 $181,700 John has authorized 100,000 common shares and 25,000 preferred shares. The preferred stock will be cumulative and pay $9 dividends. John wants to keep control of his business, so he will keep his 60,000 common shares and will sit on the board of directors. John has located a few private investors that wish to purchase stock in the corporation. Some want common stock, while other are interested in preferred stock. On January 20, 2018, John issues 30,000 common shares for $75,000 cash and issues 7,000 preferred shares for $28,000 cash. On March 1, 2018, Grindstone Paving issued and sold $200,000, 6 year bonds with an interest rate of 7%. The market rate at the time of issue was 8%. Any premium or discount on the bond is amortized using the straight line method Interest will be paid annually on February 28. Use a 4 decimal factor for the bond calculation. During 2018, the company has performed well, so the board of directors decided to pay dividends. On November 30, 2018, the company declared cash dividends of $90,000, which will be paid out on December 15, 2018. Use the cash dividends method and close cash dividends at the end of the year Prepare the journal entries for the issue of stock, issue of the bonds and the dividends. Also prepare adjustments at year end to accrue interest on the bondExplanation / Answer
Date Account Title Debit Credit Jan 20,2018 Cash 75000 Common stock(30000*1) 30000 APIC-Common stock 45000 Cash 28000 Preferred stock 28000 Mar 1,2018 Cash 190761 Discount on Bonds payable 9239 Bonds payable 200000 Nov.30,2018 Retained Earnings 90000 Dividends payable 90000 15-Dec-18 Dividends payable 90000 Cash 90000 Dec 31,2018 Interest expense(11667+1283) 12950 Interest payable(200000*7%*10/12) 11667 Discount on Bonds payable(9239/6*10/12) 1283 Workings for PV of bond Face value of the bond 200000 PV of the bond(At eff.int,.rate) 190761 (14000*4.6229)+(200000*0.6302) 9239 PV Factors: PVOAF ,8%,6 yrs.=4.6229 4.6229 PV 8%,6 yrs. =0.6302 0.6302