23E - Horngren'S Financial And Managerial Accounting

Question

Rouse Exercise Equipment, Inc. reported the following financial statements for 2018:

ROUSE EXERCISE EQUIPMENT, INC. Income statement Year ended December 31, 2018
Net sales revenue	\(713,000
Cost of goods sold	342,000
Gross Profit	371,000
Operating expense:
Depreciation expense	54,000
Other operatin expenses	210,000
Net Income	\)107,000

ROUSE EXERCISE EQUIPMENT, INC. Comparative Balance sheet December 31, 2018 and 2017
	2018	2017
Assets
Current assets:
Cash	17,000	16,000
Accounts receivable	57,000	46,000
Merchandise inventory	79,000	90,000
Long term assets:
Plant assets	260,500	216,400
Accumulated depreciation-Plant assets	(38,500)	(32,400)
Investments	96,000	73,000
Total assets	\(471,000	\)409,000
Liabilities
Current liabilities
Accounts payable	72,000	71,000
Salaries payable	3,000	5,000
Long-term liabilities
Notes payable	61,000	69,000
Total liabilities	136,000	145,000
Stockholder’s equity
Common stock, no par	45,000	34,000
Retained earnings	290,000	230,000
Total stockholder’s equity	335,000	264,000
Total liabilities and stockholder’s equity	\(471,000	\)409,000

Requirements

1. Compute the amount of Rouse Exercise’s acquisition of plant assets. Assume the acquisition was for cash. Rouse Exercise disposed of plant assets at book value. The cost and accumulated depreciation of the disposed asset was $47,900. No cash was received upon disposal.

2. Compute new borrowing or payment of long-term notes payable, with Rouse

Exercise having only one long-term notes payable transaction during the year.

3. Compute the issuance of common stock with Rouse Exercise having only one

common stock transaction during the year.

4. Compute the payment of cash dividends.

Step-by-Step Solution

Answer

1. The acquisition cost of the plant asset is $92,000.

2. Payment made towards the long term note payable is $8,000.

3. The common stock issued during the year amounting to $11,000.

4. Payment of cash dividend is 47,000.

Step 1: Fixed Assets

Fixed assets are those assets that a business held for a very long time or cannot be sold within one year and are used by the businesses to manufacture the products.

Step 2: Acquisition cost of plant assets

Particulars	Amount ($)
Ending plant asset	260,500
Add: Sale of plant asset	47,900
Less: Beginning plant assets	216,400
Acquisition of plant asset	92,000

Step 3: Payment amount of long term payables during the year

$$\begin{gathered} \mathbf{Amount}\mathbf{ }\mathbf{paid}\mathbf{ }\mathbf{against}\mathbf{ }\mathbf{note}\mathbf{ }\mathbf{payable}\mathbf{=}\mathbf{Beginning}\mathbf{ }\mathbf{note}\mathbf{ }\mathbf{payable}\mathbf{-}\mathbf{Ending}\mathbf{ }\mathbf{note}\mathbf{ }\mathbf{payable} \\ \mathbf{=}\mathbf{\$}\mathbf{69}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{61}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 4: Issuance of common stock

$$\begin{gathered} \mathbf{Issuance}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{common}\mathbf{ }\mathbf{stock}\mathbf{=}\mathbf{Ending}\mathbf{ }\mathbf{common}\mathbf{ }\mathbf{stock}\mathbf{-}\mathbf{Beginning}\mathbf{ }\mathbf{common}\mathbf{ }\mathbf{stock} \\ \mathbf{=}\mathbf{\$}\mathbf{45}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{34}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{11}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 5: Cash dividend

$$\begin{gathered} \mathbf{Cash}\mathbf{ }\mathbf{dividend}\mathbf{=}\mathbf{Net}\mathbf{ }\mathbf{profit}\mathbf{-}\left(\mathrm{Ending} \mathrm{retained} \mathrm{earning}- \mathrm{Opening} \mathrm{retained} \mathrm{earning}\right) \\ \mathbf{=}\mathbf{\$}\mathbf{107}\mathbf{,}\mathbf{000}\mathbf{-}\left(\$290,000-\$230,000\right) \\ \mathbf{=}\mathbf{\$}\mathbf{47}\mathbf{,}\mathbf{000} \end{gathered}$$