Selected transactions completed by Everyday Products Inc. during the fiscal year ending December 31, 2012, were as follows:
a. Issued 12, 500 shares of $25 par common stock
 at $32, receiving cash.
b. issued 2,000 shares of $100 par preferred 5% stock at $105, receiving cash.
c. Issued $400,000 of 10-year, 6% bonds at 105, with interest payable semiannually.
d. Declared a quarterly dividend of $0.45 per share on common stock and $1.25 per share on preferred stock. On the data of record, 85,000 shares of common stock were outstanding, no treasury share were held, and 17,000 shares of preferred stock were outstanding.
e. Paid the cash dividends declared in (d).
f. Purchased 5,500 shares of kress Corp. at $22 per share, plus a $275 brokerage commission. The investment is classified as an available-for-sale investment.
g. Purchased 6,500 shares of treasury common stock at $35 per share.
h. Purchased 36,000 shares of Lifecare Co. stock directly from the founders for $18 per share. Lifecare has 112,500 shares issued and outstanding. Everyday products Inc. treated the investment as an equity method investment.
i. Declared a 2% stock dividend on common stock
 and a $1.25 quarterly cash dividend per share on preferred stock. On the date of declaration, the market value of the common stock
 was $40 per share. On the date of record, 85,000 shares of common stock had been issued, 6,500 shares of treasury common stock
 were held, and 17,000 shares of preferred
stock had been issued.
j. Issued the stock certificates for the stock dividends declared in (h) and paid the cash dividends to the preferred stockholders.
k. Received $24,500 dividend from Lifecare Co, investment in (h)
l. Purchased $62,000 of Nordic Wear Inc. 10-year, 6% bonds, directly from the issuing company at par value, plus accrued interest of $550. The bonds are classified as a held-to-maturity long-term investment.
m. sold, at $42 per share, 2,600 shares of treasury common stock purchased in (g).
n. Received a dividend of $0.65 per share from the Kress Corp. investment in (f).
o. Sold 500 shares of Kress corp. at $26.50, including commission.
p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization was determined using the straight-line method.
q. Accrued interest for three months on the Nordic Wear Inc. bonds purchased in (1).
r. Lifecare Co. recorded total earnings of $205,000. Everyday products recorded equity earnings for its share of Lifecare co. net income.
s. The fair value for Kress Corp. stock was $18.50 per share on December 31, 2012. The investment is adjusted to fair value using a valuation allowance account. Assume Valuation Allowance for Available-for-sale Investments had a beginning balance of zero.
Instructions
1. Journalize the selected transactions.
2. After all of the transactions for the year ended December 31, 2012, had been posted [including the transactions recorded in part (1) and all adjusting entries], the data on the following page were taken from the records of Everyday Products Inc.
a. Prepare a multiple-step income statement for the year ended December 31, 2012, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 84,000 and preferred dividends were $85,000. (Round earnings per share to the nearest cent.)
b. Prepare a retained earnings statement for the year ended December 31, 2012.
c. Prepare a balance sheet in report form as of December 31, 2012.
 

1. a. Cash......................................................................... 400,000

 

 

............................................................... Common Stock 312,500

 

 

.................. Paid-In Capital in Excess of Par-Common

 

 

.............................................................................. Stock 87,500

 

 

 

b. Cash......................................................................... 210,000

 

 

.............................................................. Preferred Stock 200,000

 

 

................................ Paid-In Capital in Excess of Par-

 

 

.............................................................. Preferred Stock 10,000

 

 

 

c. Cash....................................................................... 420,000*

 

 

................................................................ Bonds Payable 400,000

 

 

........................................... Premium on Bonds Payable 20,000

 

 

 

*$400,000 × 1.05

 

 

 

d. Cash Dividends....................................................... 38,250*

 

 

................................................ Cash Dividends Payable 38,250

 

 

 

 

 

*85,000 shares × $0.45 per share

 

 

 

Cash Dividends................................................. 21,250*

 

 

................................................ Cash Dividends Payable 21,250

 

 

 

 

 

*17,000 shares × $1.25 per share

 

 

 

e. Cash Dividends Payable........................................... 59,500

 

 

................................................................................ Cash 59,500

 

 

 

f. Investments-Kress Corp. ................................... 121,275*

 

 

................................................................................ Cash 121,275

 

 

 

 

 

*(5,500 shares × $22 per share) + $275

 

 

 

g. Treasury Stock....................................................... 227,500*

 

 

................................................................................ Cash 227,500

 

 

 

 

 

*6,500 shares × $35 per share

 

 

 

h. Investment in Lifecare Co. Stock......................... 648,000*

 

 

................................................................................ Cash 648,000

 

 

 

 

 

*36,000 shares × $18 per share

 

 

 

i. Stock Dividends...................................................... 62,800*

 

 

Cash Dividends................................................... 21,250

 

 

... Stock Dividends Distributable......... 39,250**

 

 

.................. Paid-In Capital in Excess of Par-Common

 

 

.............................................................................. Stock 23,550

 

 

................................................ Cash Dividends Payable 21,250

 

 

 

*85,000 - 6,500 = 78,500

 

 

78,500 × 2% × $40 per share = $62,800

 

 

**78,500 × 2% × $25 par value per share = $39,250

 

 

 

j. Stock Dividends Distributable.................................. 39,250

 

 

Cash Dividends Payable..................................... 21,250

 

 

............................................................... Common Stock 39,250

 

 

................................................................................ Cash 21,250

 

 

 

k. Cash........................................................................... 24,500

 

 

.................................. Investment in Lifecare Co. Stock 24,500

 

 

 

l. Investments-Nordic Wear Inc. Bonds.................... 62,000

 

 

Interest Receivable................................................... 550

 

 

................................................................................ Cash 62,550

 

 

 

m. Cash....................................................................... 109,200*

 

 

................................................................ Treasury Stock 91,000**

 

 

................. Paid-In Capital from Sale of Treasury Stock 18,200

 

 

 

*2,600 shares × $42 per share

 

 

**2,600 shares × $35 per share

 

 

 

n. Cash............................................................................. 3,575

 

 

......................................................... Dividend Revenue 3,575

 

 

 

*5,500 shares × $0.65 per share

 

 

 

o. Cash......................................................................... 13,250*

 

 

............................................ Gain on Sale of Investment 2,225

 

 

............................................. Investments-Kress Corp. 11,025**

 

 

 

*500 shares × $26.50 per share

 

 

**500 shares × ($121,275/5,500 shares)

 

 

 

p. Interest Expense.............................................................. 11,000

 

 

Premium on Bonds Payable.................................. 1,000

 

 

................................................................................ Cash 12,000

 

 

 

Computations:

 

 

Semiannual interest payment ($400,000 × 6% × Â½) $12,000

 

 

Less amortization premium [($20,000/10 years) .... × ½] 1,000

 

 

Interest expense.............................................................. $11,000

 

 

 

q. Interest Receivable......................................................... 930

 

 

............................................................ Interest Revenue 930

 

 

.......................... Interest accrued for three months.

 

 

 

Computation: $62,000 × 6% × 3/12 = $930

 

 

 

r. Investment in Lifecare Co. Stock........................... 65,600*

 

 

.............................................. Income from Lifecare Co. 65,600

 

 

...... Record 32% share of Lifecare Co. net income.

 

 

 

*$205,000 × 32%, 32% = 36,000 shares/112,500 shares

 

 

 

 

 

s. Unrealized Gain (Loss) on Available-for-Sale

 

 

Investments......................................................... 17,750

 

 

.................. Valuation Allowance for Available-for-Sale

 

 

.................................................................... Investments 17,750

 

 

......................... To record decrease in fair value of

 

 

................................ available-for-sale investments,

 

 

......................... 5,000 shares × ($18.50 - $22.05*).

 

 

 

*$22.05 = $121,275/5,500 shares

 

 

 

2. a.

 

 

EVERYDAY PRODUCTS INC.

 

 

Income Statement

 

 

For the Year Ended December 31, 2012

 

 

 

Sales.................................................................................... $5,145,000

Cost of merchandise sold................................................... 3,650,000

Gross profit......................................................................... $1,495,000

Operating expenses:

Selling expenses:

Sales salaries expense.............................................. $365,000

Sales commissions................................................... 182,000

Advertising expense............................................... 125,000

 

 

Depreciation expense-store buildings

and equipment.................................................. 95,000

Delivery expense..................................................... 29,000

Store supplies expense............................................ 22,000

Miscellaneous selling expense................................. 13,750 $831,750

Administrative expenses:

Office salaries expense........................................... $165,000

Office rent expense................................................. 50,000

Depreciation expense-office buildings

and equipment.................................................. 26,000

Office supplies expense.......................................... 10,000

Miscellaneous administrative expense.................... 7,500 258,500

Total operating expenses............................................... 1,090,250

Income from operations...................................................... $ 404,750

 

Other expenses and income:

Dividend revenue......................................................... $ 3,575

Interest revenue............................................................ 1,800

Income from Lifecare Co. investment.......................... 65,600

Gain on sale of investment........................................... 2,225

Interest expense............................................................ (19,000) 54,200

Income before income tax.................................................. $ 458,950

Income tax.......................................................................... 128,500

Net income.......................................................................... $ 330,450

 

 

 

Earnings per common share:

 

 

Net income........................................................................... $2.92*

 

 

 

*($330,450 - $85,000 preferred dividends)/84,000 common shares, rounded

 

 

 

 

b. EVERYDAY PRODUCTS INC.

 

 

Retained Earnings Statement

 

 

For the Year Ended December 31, 2012

 

 

 

Retained earnings, January 1, 2012........................... $8,708,150

Net income for year................................................... $330,450

Less dividends:

Cash dividends.................................................... $240,120

 

 

Stock dividends................................................... 62,800 302,920

Increase in retained earnings...................................... 27,530

Retained earnings, December 31, 2012..................... $8,735,680

 

 

 

c. EVERYDAY PRODUCTS INC.

 

 

Balance Sheet

 

 

December 31, 2012

 

 

 

Assets

 

 

 

Current assets:

 

 

Cash..................................................................... $ 240,000

 

 

Available-for-sale investments............................. $ 110,250

Less valuation allowance for available-for-

sale investment............................................... 17,750 92,500

 

 

Accounts receivable............................................. $ 543,000

Less allowance for doubtful accounts................. 8,150 534,850

Merchandise inventory, at lower of cost

(FIFO) or market........................................... 780,000

Interest receivable................................................ 930

Prepaid expenses.................................................. 26,500

Total current assets........................................ $ 1,674,780

Investments:

Investment in Lifecare Co. stock......................... 689,100

Investment in Nordic Wear Inc. bonds............... 62,000

Property, plant, and equipment:

Store buildings and equipment............................ $ 12,560,000

Less accumulated depreciation............................ 4,126,000 $8,434,000

Office buildings and equipment.......................... $ 4,320,000

Less accumulated depreciation............................ 1,580,000 2,740,000

Total property, plant, and equipment 11,174,000

 

 

Intangible assets:

Goodwill.............................................................. 510,000

Total assets................................................................. $ 14,109,880

 

 

 

EVERDAY PRODUCTS INC.

 

 

Balance Sheet

 

 

December 31, 2012

 

 

 

Liabilities

 

 

 

Current liabilities:

 

 

Accounts payable................................................. $ 195,000

Income tax payable.............................................. 40,000

Total current liabilities................................... $ 235,000

Long-term liabilities:

Bonds payable, 6%, due 2022............................. $ 400,000

Add premium on bonds payable.......................... 19,000 419,000

Total liabilities............................................................ $ 654,000

 

Stockholders' Equity

 

 

 

Paid-in capital:

 

 

Preferred 5% stock, $100 par (30,000

shares authorized; 17,000 shares

issued)............................................................. $1,700,000

Excess of issue price over par.............................. 150,000 $ 1,850,000

Common stock, $25 par (400,000 shares

authorized; 86,570 shares issued,

82,670 shares outstanding).............................. $2,164,250

Excess of issue price over par.............................. 842,000 3,006,250

From sale of treasury stock.................................. 18,200

Total paid-in capital....................................... $ 4,874,450

Retained earnings...................................................... 8,735,680

Unrealized gain (loss) on available-for-sale

investments............................................................. (17,750)

Total..................................................................... $ 13,592,380

Deduct treasury common stock (3,900 shares

at cost).................................................................... 136,500

Total stockholders' equity......................................... 13,455,880

Total liabilities and stockholders' equity................... $ 14,109,880