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Holister Electric Inc.

Balance Sheet

As at December 31, 2020

Assets

Liabilities

Cash

$25,000

Accounts Payable

$12,200

Accounts Receivable

13,500

Unearned Revenue

5,200

Prepaid Insurance

3,600

Bank Loan

26,000

Inventory

72,000

Total Liabilities

43,400

Property, Plant & Equipment

210,000

Shareholders' Equity

Accumulated Depreciation

-25,000

Common Shares - 90,000 issued

90,000

Retained Earnings

165,700

Total Shareholder's Equity

255,700

Total Assets

$299,100

Liabilities & Owner's Equity

$299,100

At 2020, Razul has authorized 150,000 common shares and 10,000 preferred shares. The preferred shares will be cumulative and pay $5 dividends. The 90,000 shares issued were issued to Razul. He will maintain control of the company and sit on the board of directors.

Transactions during 2021

a) On January 1, Holister purchased a strategic investment of 12,000 shares in Gregor Inc. for $11 per share, and it made the purchase entirely using cash. This represents 40% of Gregor Inc. common shares. On December 31, Gregor Inc. declares and pays a $60,000 dividend and reports a net income of $400,000. Holister will use the equity method to record this investment.

b) On January 1, Razul has located a few private investors that wish to purchase shares in the new corporation. Some want common shares, while other are interested in preferred shares. Holister Electric Inc. issued 30,000 common shares for $75,000 cash and issued 3,000 preferred shares for $12,000 cash.

c) On March 1, Holister Electric Inc. issued and sold $150,000, 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 amortization method. Interest will be paid annually on February 28. The Present value of 1 and annuity of 1 of 8% for 6 periods are 0.6302 and 4.6229,respectively. Use a 4 decimal factor for the bond calculation.

d) On April 1, the company has extra cash on hand and would like to invest it in short-term bonds issued by Gamma Ltd. The company bought 20, $1,000 short term (one-year) bonds at par on this date and intended to sell these bonds before maturity. The interest rate on the bond is 9%, payable annually at March 31. On December 31, 2021, each bond was trading in the market at $1,020. On January 1, 2022, all bonds were sold for $21,000.

e) On July 1, Holister purchased a $50,000, 5 year bond paying 6%. Interest is paid every 6 months on December 31 and June 30. The company plans to hold onto the bond until it matures.

f) On November 23, the company purchased 2,000 shares of Daenerys Inc. at $19 per share for the purpose of trading. The shares are less than 4% of the total shares of Daenerys Inc. and are a non-strategic investment. By December 31, the price per share had gone up to $22 per share.

g) During 2021, Holister Electric Inc. has performed well, so the board of directors decided to pay dividends. On November 30, 2021, the company declared cash dividends of $50,000, which will be paid out on December 15, 2021. Use the cash dividends method and close cash dividends at the end of the year.

Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the investments made during the year, 2021 . Also prepare adjustments at year end to accrue interest on the bond and to record change to any applicable investments.

Date

Account Title and Explanation

DR

CR

A B C D E F G . 1 PART II Razul took the proceeds from dissolving the partnership and purchased a corporation selling electrical parts used for large production companies. He employs several people, but is looking to expand his operations further. In addition to expanding the sales of electrical parts, he also wants to start selling heating, ventilation and air conditioning (HVAC) parts and machinery through a separate division of the company called 'HVAC 7 Parts & Machinery.' Currently, Razul owns all the shares in the corporation. To raise the needed cash, he 8 decides to offer common and preferred shares for sale to investors starting in 2021. Below is the balance sheet 9 at the end of 2020. 10 11 Holister Electric Inc. 12 Balance Sheet 13 As at December 31, 2020 14 Assets Liabilities 15 Cash $25,000 Accounts Payable $12,200 16 Accounts Receivable 13,500 Unearned Revenue 5,200 17 Prepaid Insurance 3,600 Bank Loan 26,000 18 Inventory 72,000 Total Liabilities 43,400 19 Property, Plant & Equipment 210,000 Shareholders' Equity 20 Accumulated Depreciation -25,000 Common Shares - 90,000 issued 90,000 21 Retained Earnings 165,700 22 Total Shareholder's Equity 255,700 23 Total Assets $299,100 Liabilities & Owner's Equity $299,100 24 Cotal Assets Total Shareholder's Equity Liabilities & Owner's Equity $299,100 255, $299, At 2020, Razul has authorized 150,000 common shares and 10,000 preferred shares. The preferred shares wil be cumulative and pay $5 dividends. The 90,000 shares issued were issued to Razul. He will maintain contro! the company and sit on the board of directors. Transactions during 2021 a) On January 1, Holister purchased a strategic investment of 12,000 shares in Gregor Inc. for $11 per share, and it made the purchase entirely using cash. This represents 40% of Gregor Inc. common shares. On December 31, Gregor Inc. declares and pays a $60,000 dividend and reports a net income of $400,000. Holister will use 3 the equity method to record this investment. 4 5 36 b) On January 1, Razul has located a few private investors that wish to purchase shares in the new corporation. Some want common shares, while other are interested in preferred shares. Holister Electric Inc. issued 30,000 37 common shares for $75,000 cash and issued 3,000 preferred shares for $12,000 cash. 38 39 40 41 c) On March 1, Holister Electric Inc. issued and sold $150,000, 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 42 line amortization method. Interest will be paid annually on February 28. The Present value of 1 and annuity of 43 1 of 8% for 6 periods are 0.6302 and 4.6229,respectively. Use a 4 decimal factor for the bond calculation. 44 45 46 d) On April 1, the company has extra cash on hand and would like to invest it in short-term bonds issued by 47 Gamma Ltd. The company bought 20, $1,000 short term (one-year) bonds at par on this date and intended to 48 sell these bonds before maturity. The interest rate on the bond is 9%, payable annually at March 31. On 49 December 31, 2021, each bond was trading in the market at $1,020. On January 1, 2022, all bonds were sold for 50 $21,000. 51 52 e) On July 1, Holister purchased a $50,000, 5 year bond paying 6%. Interest is paid every 6 months on 53 December 31 and June 30. The company plans to hold onto the bond until it matures. 54 55 56 f) On November 23, the company purchased 2,000 shares of Daenerys Inc. at $19 per share for the purpose of 57 trading. The shares are less than 4% of the total shares of Daenerys Inc. and are a non-strategic investment. By 58 December 31, the price per share had gone up to $22 per share. 59 60 g) During 2021, Holister Electric Inc. has performed well, so the board of directors decided to pay dividends. On 61 November 30, 2021, the company declared cash dividends of $50,000, which will be paid out on December 15, 62 2021. Use the cash dividends method and close cash dividends at the end of the year. 63 64 Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the 65 investments made during the year, 2021. Also prepare adjustments at year end to accrue interest on the bond 66 and to record change to any applicable investments. 67 68 Date Account Title and Explanation DR CR 69 A B C D E F G . 1 PART II Razul took the proceeds from dissolving the partnership and purchased a corporation selling electrical parts used for large production companies. He employs several people, but is looking to expand his operations further. In addition to expanding the sales of electrical parts, he also wants to start selling heating, ventilation and air conditioning (HVAC) parts and machinery through a separate division of the company called 'HVAC 7 Parts & Machinery.' Currently, Razul owns all the shares in the corporation. To raise the needed cash, he 8 decides to offer common and preferred shares for sale to investors starting in 2021. Below is the balance sheet 9 at the end of 2020. 10 11 Holister Electric Inc. 12 Balance Sheet 13 As at December 31, 2020 14 Assets Liabilities 15 Cash $25,000 Accounts Payable $12,200 16 Accounts Receivable 13,500 Unearned Revenue 5,200 17 Prepaid Insurance 3,600 Bank Loan 26,000 18 Inventory 72,000 Total Liabilities 43,400 19 Property, Plant & Equipment 210,000 Shareholders' Equity 20 Accumulated Depreciation -25,000 Common Shares - 90,000 issued 90,000 21 Retained Earnings 165,700 22 Total Shareholder's Equity 255,700 23 Total Assets $299,100 Liabilities & Owner's Equity $299,100 24 Cotal Assets Total Shareholder's Equity Liabilities & Owner's Equity $299,100 255, $299, At 2020, Razul has authorized 150,000 common shares and 10,000 preferred shares. The preferred shares wil be cumulative and pay $5 dividends. The 90,000 shares issued were issued to Razul. He will maintain contro! the company and sit on the board of directors. Transactions during 2021 a) On January 1, Holister purchased a strategic investment of 12,000 shares in Gregor Inc. for $11 per share, and it made the purchase entirely using cash. This represents 40% of Gregor Inc. common shares. On December 31, Gregor Inc. declares and pays a $60,000 dividend and reports a net income of $400,000. Holister will use 3 the equity method to record this investment. 4 5 36 b) On January 1, Razul has located a few private investors that wish to purchase shares in the new corporation. Some want common shares, while other are interested in preferred shares. Holister Electric Inc. issued 30,000 37 common shares for $75,000 cash and issued 3,000 preferred shares for $12,000 cash. 38 39 40 41 c) On March 1, Holister Electric Inc. issued and sold $150,000, 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 42 line amortization method. Interest will be paid annually on February 28. The Present value of 1 and annuity of 43 1 of 8% for 6 periods are 0.6302 and 4.6229,respectively. Use a 4 decimal factor for the bond calculation. 44 45 46 d) On April 1, the company has extra cash on hand and would like to invest it in short-term bonds issued by 47 Gamma Ltd. The company bought 20, $1,000 short term (one-year) bonds at par on this date and intended to 48 sell these bonds before maturity. The interest rate on the bond is 9%, payable annually at March 31. On 49 December 31, 2021, each bond was trading in the market at $1,020. On January 1, 2022, all bonds were sold for 50 $21,000. 51 52 e) On July 1, Holister purchased a $50,000, 5 year bond paying 6%. Interest is paid every 6 months on 53 December 31 and June 30. The company plans to hold onto the bond until it matures. 54 55 56 f) On November 23, the company purchased 2,000 shares of Daenerys Inc. at $19 per share for the purpose of 57 trading. The shares are less than 4% of the total shares of Daenerys Inc. and are a non-strategic investment. By 58 December 31, the price per share had gone up to $22 per share. 59 60 g) During 2021, Holister Electric Inc. has performed well, so the board of directors decided to pay dividends. On 61 November 30, 2021, the company declared cash dividends of $50,000, which will be paid out on December 15, 62 2021. Use the cash dividends method and close cash dividends at the end of the year. 63 64 Prepare the journal entries for the issue of shares, issue of the bonds and the dividends, plus all the 65 investments made during the year, 2021. Also prepare adjustments at year end to accrue interest on the bond 66 and to record change to any applicable investments. 67 68 Date Account Title and Explanation DR CR 69

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