On January 1, 2010, Alsip Corp. acquired 30 percent (13,000 shares)of Stone Services Inc. common stock for $1,300,000 as a long-terminvestment. Data from Stone's 2010 financial statements include thefollowing:
Net income ............................................$330,000
Less cash dividends paid ..............................160,000
Increase in retained earnings .........................$170,000
The market value of Stone Services Inc. common stock on December31, 2010, was $98 per share. Alsip does not have any othernoncurrent investments in securities.
Prepare the necessary journal entries for Alsipâs investment inStone Services Inc. common stock under
(1) the cost method classified as available-for-salesecurities.
(2) the equity method.
Net income ............................................$330,000
Less cash dividends paid ..............................160,000
Increase in retained earnings .........................$170,000
The market value of Stone Services Inc. common stock on December31, 2010, was $98 per share. Alsip does not have any othernoncurrent investments in securities.
Prepare the necessary journal entries for Alsipâs investment inStone Services Inc. common stock under
(1) the cost method classified as available-for-salesecurities.
(2) the equity method.
Related questions
Star Industries Inc comparative financial statements for theyears ending December 31, 2010 and 2009, are as follows. The marketprice for Star Industries common stock was $ 20 on December 31,2009, and $ 32 on December 31, 2010. Common stockshares outstanding for both 2010 and 2009 are 70000 shares (Ie $700,000 / $ 10 par)
Star Industries
Comparative Income Statement
For the Years Ended December 31, 2010 and 2009
2010 | 2009 | ||
Sales | $7,000,000 | $5,670,000 | |
Sales returns and allowances | $325,000 | $175,000 | |
Net Sales | $6,675,000 | $5,495,000 | |
Cost of Goods Sold | $4,850,000 | $3,950,000 | |
Gross Profit | $1,825,000 | $1,545,000 | |
Selling Expenses | $780,000 | $464,000 | |
Administrative Expenses | $485,000 | $423,000 | |
Total Operating Expenses | $1,465,000 | $887,000 | |
Income From Operations | $360,000 | $658,000 | |
Other Income | $25,000 | $19,200 | |
Earnings before Interest & taxes (EBIT) | $385,000 | $677,200 | |
Other Expenses (interest) | $105,000 | $64,000 | |
Income Before Income Tax | $280,000 | $613,200 | |
Income Tax Expense | $35,000 | $176,000 | |
Net Income | $245,000 | $437,200 |
`
Star Industries
Comparative Retained Earnings Statement
For the Years Ended December 31, 2010 and 2009
2010 | 2009 | ||
Retained Earnings, Januray 1 | $ 723,000 | $ 355,800 | |
Add Net Income for year | $245,000 | $437,200 | |
Total | $ 968,000 | $ 793,000 | |
Deduct dividends: | |||
Preferred Stock | $ 40,000 | $ 40,000 | |
Common Stock | $ 45,000 | $ 30,000 | |
Total | $ 85,000 | $ 70,000 | |
Retained Earnings, December 31 | $883,000 | $ 723,000 |
Star Industries
Comparative Balance Statement
December 31, 2010 and 2009
12-31-2010 | 12-31-2009 | ||||
Assets | |||||
Current Assets | |||||
Cash | $235,000 | $215,000 | |||
Temporary Investments | $10,000 | $50,000 | |||
Accounts Receivable(Net) | $525,000 | $425,000 | |||
Inventories | $940,000 | $580,000 | |||
Prepaid Expenses | $30,000 | $20,000 | |||
Total Current Assets | $1,740,000 | $1,290,000 | |||
Long-Term Investments | $165,000 | $135,000 | |||
Property, Plant and Equipment (Net) | $2,525,000 | $1,878,000 | |||
Total Assets | $4,430,000 | $3,303,000 | |||
Liabilities | |||||
Current Liabilities | $950,000 | $780,000 | |||
Long-Term Liabilities | |||||
Mortgage Note Payable 8%(due 2013) | $410,000 | $0 | |||
Bonds Payable, 7% (due2016) | $1,200,000 | $800,000 | |||
Total Long Term Liabilities | $1,610,000 | $800,000 | |||
Total Liabilities | $2,560,000 | $1,580,000 | |||
Stockholders' Equity | |||||
Preferred 8% stock, $ 100 Par | $300,000 | $300,000 | |||
Common Stock, $ 10 Par | $700,000 | $700,000 | |||
Retained Earnings | $883,000 | $723,000 | |||
Total Stockholders' Equity | $1,883,000 | $1,723,000 | |||
Total Liabilities and Stockholders' Equity | $4,443,000 | $3,303,000 | |||
Determine the following measures for 2010: Compare withindustry norms and comment:
Ratios | Industry Norm | ||||
1. Working Capital | N/A | ||||
2. Current Ratio | 2.2 | ||||
3. Quick Ratio | 0.8 | ||||
4. Accounts Receivable Turnover | 16.0 | ||||
5. Number of days sales in receivables | 22.2 | ||||
6. Inventory Turnover | 5.0 | ||||
7. Number of days sales in inventory | 75.0 | ||||
8. Ratio of fixed assets to long-term liabilites | 2.0 | ||||
9. Ratio of liabilities to stockkholders equity | 0.7 | ||||
10. Number of times interest charges are earned | 8.5 | ||||
11. Number of times preferred dividends earned | 7.1 | ||||
12. Ratio of net sales to assets | 2.1 | ||||
13. Rate earned on total assets | 8.5% | ||||
14. Rate earned on stockholders' equity | 12.0% | ||||
15. Rate earned on common stockholders' equity | 14.2% | ||||
16. Earnings per share on common stock | $3.65 | ||||
17. Price-earnings ratio | 9.2 | ||||
18. Dividends per share | $0.80 | ||||
19. Dividend yield | 2.50% | ||||
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