On January 1, 2018, the general ledger of Grand Finale Fireworks includes the fo
ID: 2586117 • Letter: O
Question
On January 1, 2018, the general ledger of Grand Finale Fireworks includes the following account balances:
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, $19,500.
January 10 Purchase additional supplies on account, $6,700.
January 12 Repurchase 1,200 shares of treasury stock for $21 per share.
January 15 Pay cash on accounts payable, $18,300.
January 21 Provide services to customers for cash, $50,900.
January 22 Receive cash on accounts receivable, $18,400.
January 29 Declare a cash dividend of $0.30 per share to all shares outstanding on January 29. The dividend is payable on February 15. (Hint: Grand Finale Fireworks had 18,000 shares outstanding on January 1, 2018 and dividends are not paid on treasury stock.)
January 30 Reissue 600 shares of treasury stock for $23 per share.
January 31 Pay cash for salaries during January, $43,800.
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1. Record each of the transactions listed above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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a. Unpaid utilities for the month of January are $8,000.
b. Supplies at the end of January total $6,900.
c. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a service life of three years and a residual value of $11,800.
d. Accrued income taxes at the end of January are $2,900.
2. Record the adjusting entries on January 31, 2018 for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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3. Prepare an adjusted trial balance as of January 31, 2018.
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4. Prepare a multiple-step income statement for the period ended January 31, 2018.
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5. Prepare a classified balance sheet as of January 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)
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6. Record closing entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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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 2.5%, 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?
Explanation / Answer
1.
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7-a.2
The company is more profitable as the return on equity is 2.73 as compared to industry average of 2.5
GRAND FINALE FIREWORKS General journal for the month of January 2018 Date Account Title Debit Credit Jan.2 Cash 40000 Common Stock 2000 Additional Paid in capital 38000 Jan.9 Accounts Receivable 19500 Service revenue 19500 Jan.10 Supplies 6700 Accounts payable 6700 Jan.12 Treasury stock 25200 Cash 25200 Jan.15 Accounts payable 18300 Cash 18300 Jan.21 Cash 50900 Service revenue 50900 Jan.22 Cash 18400 Accounts Receivable 18400 Jan.29 Retained earnings 5640 Dividend payable 5640 Jan.30 Cash 13800 Treasury stock 12600 Additional paid-in-capital 1200 Jan.31 Salaries expense 43800 Cash 43800