Oct. 6 Issued 2,000 preferred shares, receiving cash of $300,000 — Greyhawk Investments Inc articles incorporation authorize the company issue common and 400

Greyhawk Investments Inc.’s articles of incorporation authorize the company to issue 1,000,000 common shares and 400,000 $9.00 preferred shares. During the first quarter of operations, Greyhawk Investments Inc. completed the following selected transactions:

2017

Oct. 1 Issued 50,000 common shares for cash of $30.00 per share. 4 Signed a capital lease for equipment. The lease requires a down payment of $600,000, plus 20 quarterly lease payments of $60,000. The present value of the future lease payments is $981,086 at an annual interest rate of 8 percent.

Oct. 6 Issued 2,000 preferred shares, receiving cash of $300,000.

22 Purchased land from the Province of Manitoba for $300,000 cash.

30 Purchased 5,000 (25 percent) of the outstanding common shares of Big Sky Ltd. as a long-term investment, $270,000.

Nov. 1 Issued $1,000,000 of 6 percent, 10-year bonds payable at 98.

16 Purchased short-term investments in the common shares of TELUS Corporation, $85,000, and ATCO Ltd., $87,000.

19 Purchased $1,000,000 of inventory on account. Greyhawk Investments Inc. uses a perpetual inventory system.

20 Repurchased 2,000 of the company’s common shares at $15.00 per share for cancellation.

Dec. 1 Received cash dividends of $1,800 on the TELUS investment.

16 Sold 1,000 of the company’s common shares for cash of $24.00 per share.

29 Received a report from Big Sky Ltd. indicating the combined net income for November and December was $25,000.

30 Sold merchandise on account, $2,148,000. Cost of the goods was $945,000. Operating expenses totalled $557,000, with $498,000 of this amount paid in cash. Greyhawk Investments Inc. uses a perpetual inventory system.

31 Accrued interest and amortized discount (straight-line method) on the bonds payable.

31 Accrued interest on the capital lease liability.

🔒

Unlock the complete assignment

You are viewing the free preview. Purchase this assignment once to reveal the complete resource.

$9.99 USD

Secure checkout is completed by Stripe.

31 Amortized the equipment acquired by the capital lease. The company uses the double-declining-balance method.

31 Market values of short-term investments: TELUS Corporation shares, $84,000, and ATCO Ltd. shares, $93,000.

31 Accrued income tax expense of $240,000. Credit the Income Tax Payable account.

31 Closed all revenues, expenses, and losses to Retained Earnings in a single closing entry.

31 Declared a quarterly cash dividend of $2.25 per share on the preferred shares. Record date is January 11, 2018, with payment scheduled for January 19.

Required

1. Record these transactions in the general journal. Explanations are not required. Disregard commissions.

2. Prepare a single-step income statement for the quarter ended December 31, 2017, including earnings per share. (Use T-accounts to calculate account balances.)

3. Report the liabilities and the shareholders’ equity as they would appear on the balance sheet at December 1, 2017.

SOLUTION

Req. 1

General Journal
DATE	DATE	ACCOUNT TITLES AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
2017	2017
Oct.	1	Cash		1,500,000
		Common Shares			1,500,000
		(50,000 $30)
	4	Equipment under Capital Lease		1,581,086
		Cash			600,000
		Lease Liability			981,086
	6	Cash		300,000
		Preferred Shares (2,000 shares)			300,000
	22	Land		300,000
		Cash			300,000
	30	Investment in Big Sky Ltd. Common Shares		270,000
		Cash			270,000
Nov.	1	Cash		980,000
		Discount on Bonds Payable		20,000
		Bonds Payable			1,000,000
		($1,000,000 0.98)
	16	Short-Term Investments (TELUS Corporation)		85,000
		Short-Term Investments (ATCO Ltd.)		87,000
		Cash			172,000
	19	Inventory		1,000,000
		Accounts Payable			1,000,000

Nov.	20	Common Shares	60,000
		Cash		30,000
		Contributed Surplus—Share Repurchase		30,000
		Shares are (2,000 $30), Cash is (2,000 $15)
Dec.	1	Cash	1,800
		Dividend Revenue		1,800
	16	Cash	24,000
		Common Shares		24,000
		(1,000 $24.00)
	29	Investment in Big Sky Ltd. Common Shares	6,250
		Equity Method Investment Revenue		6,250
		($25,000 0.25)
	30	Accounts Receivable	2,148,000
		Sales Revenue		2,148,000
	30	Cost of Goods Sold	945,000
		Inventory		945,000
	30	Operating Expenses	557,000
		Cash		498,000
		Accounts Payable, Salary Payable, etc.		59,000
	31	Interest Expense	10,333
		Discount on Bonds Payable		333
		Interest Payable		10,000
		Discount calculation: ($20,000/10 2/12) Interest calculation: ($1,000,000 0.06 2/12)
Dec.	31	Interest Expense	19,622
		Obligation under Capital Lease		19,622
		($981,086 0.08 3/12)
	31	Lease Liability	240,000
		Obligation under Capital Lease		240,000
		($60,000 4 payments)
	31	Amortization Expense	158,109
		Accumulated Amortization—Leased Equipment		158,109
		($1,581,086 0.40 3/12)
	31	Fair Value Valuation Allowance	5,000
		Unrealized Gain on Fair Value Adjustment		5,000
	31	Income Tax Expense	240,000
		Income Tax Payable		240,000
	31	Dividend Revenue	1,800
		Sales Revenue	2,148,000
		Equity Method Investment Revenue	6,250
		Unrealized Gain on Fair Value Adjustment	5,000
		Retained Earnings		230,986
		Cost of Goods Sold		945,000
		Operating Expenses		557,000
		Interest Expense ($10,333 + $19,622)		29,955
		Amortization Expense		158,109
		Income Tax Expense		240,000
	31	Retained Earnings	4,500
		Dividends Payable		4,500
		(2,000 $7.25)

Req. 2

Greyhawk Investments Inc.
Income Statement
For the Three Months Ended December 31, 2017
Revenues:
Sales revenue		$2,148,000
Equity method investment revenue		6,250
Dividend revenue		1,800
Unrealized gain on fair value adjustment		5,000
		2,161,050
Expenses:
Cost of goods sold	$945,000
Operating expenses	557,000
Amortization expense	158,109
Interest expense	29,955
Income tax expense	240,000	1,930,064
Net Income		$ 230,986
Earnings per common share (49,261** shares outstanding):
Net income
[($230,986 – $4,500)/49,261*]		$4.60
	*	Preferred dividend 2,000 $9.00 3/12 = $4,500
** Common shares 50,000 50 days	=	2,500,000
48,000 26 days	=	1,248,000
49,000 16 days	=	784,000
92	=	$4,532,000
	Average number of common shares outstanding $4,532,000/92 = 49,261 shares

Req. 3

Greyhawk Investments Inc.
Balance Sheet
December 31, 2017
Liabilities
Current:
Accounts payable, Salary payable, etc.		$ 1,059,000
Income tax payable		240,000
Obligation under capital lease ($60,000 4 quarterly payments)		240,000
Interest payable		10,000
Dividends payable		4,500
Total current liabilities		553,500
Long-term:
Lease liability ($981,086 + $19,622 – $240,000)		760,708
Bonds payable	$1,000,000
Less: Discount on bonds payable ($20,000 – $333)	(19,667)	980,333
Total long-term liabilities		1,741,041
Total liabilities		$2,294,541
Shareholders’ Equity
Contributed capital:
Preferred shares, $9.00, 400,000 shares authorized,
2,000 shares issued		$300,000
Common shares, 1,000,000 shares authorized, 49,000
shares issued		1,464,000
Contributed surplus—Share repurchase		30,000
Total contributed capital		1,794,000
Retained earnings ($230,986 – $4,500)		226,486
Total shareholders’ equity		$2,020,486
Total liabilities and shareholders’ equity		$4,315,027