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Comprehensive The Lurch Company’s December 31 2006 balance sheet follows Assets Cash $540,000 Inventory 450000 Prepaid rent 60000 Machine $500000 Less Accumulated depreciation

Comprehensive - The Lurch Company’s December 31, 2006 balance sheet follows:

Assets

Cash

$540,000

Inventory

450,000

Prepaid rent

60,000

Machine

$500,000

Less: Accumulated depreciation

135,000

365,000

$1,415,000

 

Liabilities and Equities

Accounts payable

$400,000

Common stock, $10 par

300,000

Additional paid-in capital

515,000

Retained earnings

200,000

$1,415,000

During 2007, the following transactions occurred:

1. To avoid paying monthly rent of $5,000 on existing plant facilities, the company decided to buy a tract of land and construct a building of its own on it. On January 2, 2007, Lurch exchanged 6,000 shares of its common stock to acquire the land; the stock was selling for $25 per share. Construction of the building also began on January 2, 2007. At the time, Lurch borrowed funds by issuing a one-year, $500,000 note at 12% to help finance the project. The principal and interest on the note are due January 3, 2008. Construction costs (paid in cash) that occurred evenly throughout the year totaled $700,000. The building was completed on December 30, 2007 and the move-in to the new building was to occur during the next week.

2. On January 2, 2007 Lurch exchanged its one existing machine plus $50,000 for a newer machine with a fair value of $430,000. The new machine is to be depreciated using straight-line depreciation based on an economic life of five years and a residual value of $55,000.

3. Lurch uses a FIFO perpetual inventory system. Lurch sold $350,000 of its inventory for $700,000 cash, paid for its beginning accounts payable, and purchased $480,000 of inventory on account during the year.

4. On July 31, 2007, Lurch declared and paid a $2.50 per share cash dividend to its shareholders.

5. Lurch is subject to a 30% income tax rate, and income taxes are accrued at year-end.

Required

Prepare Lurch’s income statement and statement of retained earnings for the fiscal year ended December 31, 2007 and a balance sheet as of December 31, 2007. Show all supporting journal entries and computations made during 2007.

May 21 2020 View more View Less

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