Louisville Farms

QUESTION 1:(Points 35)Louisville Farms, a breeder of racehorses, paid $432,000 cash for a prize-winning stallion on January1, 2013. The stallion is depreciated on a straight-line basis, with depreciation for partial years roundedto the nearest month. Estimated useful life was nine years, with no residual value. After owning theanimal for six years and five months, Louisville Farms sold the stallion on May 31, 2019, for cash of$85,000. Depreciation had last been recorded on December 31, 2018.1.1. Compute to the nearest full month depreciation for the fractional period from January 1, 2019to May 31 of 2019. $______________ (Show your calculations).1.2. Compute the book value of the stallion at May 31, 2019, the date of sale.$______________ (Show your calculations).1.3. Compute the gain or loss on the sale of the stallion. $______________ [gain/loss] (Showyour calculations).1.4. In the space provided below, prepare the journal entry to record the sale of the stallion onMay 31, 2019. [Use Breeding Stock as the title of the asset account. Assume that depreciationto date of sale already has been recorded.] (Show your calculations).2009 General JournalMay 31QUESTION 2:(Points 15)2.1. Define bonds and explain the type of bonds you think the CEO, Mr. Carter should look at andwhy?2.2. Explain the income tax advantage of raising capital by issuing bonds rather than by sellingcapital stock.2.3. There is a business saying that “You shouldn’t be in business if your company doesn’t earnhigher than bank rates.” This means that if a company is to succeed, its return on assets shouldbe significantly higher than its cost of borrowing. Explain this saying to Mr. Carter and tell him why isthis so important?QUESTION 3:(Points 35)3.1. Why is noncumulative preferred stock often considered an unattractive form of investment?3.2. State the balance sheet or income statement classification (asset, liability, stockholders’ equity,revenue, or expense) of each of the following accounts:A. Cash (received from the issuance of capital stock).B. Organization Costs.C. Preferred Stock.D. Retained Earnings.E. Additional Paid-in Capital.F. Income Taxes Payable.3.3. Louisville Farms, sold 10,000 shares of common stock, which has a par value of $8, for $13 pershare. The company’s balance in retained earnings is $75,000. Prepare the stockholders’ equitysection of the company’s balance sheet.QUESTION 4(15 Points)Analysing StatementsThe statements of Woody Woodpecker Corp. contain the following information:2019 2018Cash & Cash Equivalents $ 65,000.00 $ 42,000.00Accounts Receivable $ 44,000.00 $ 51,000.00Inventory $ 129,000.00 $ 102,000.00Prepaid Expenses $ 12,000.00 $ 9,200.00Other Current Assets $ 9,500.00 $ 8,400.00Total Assets $ 450,000.00 $ 390,000.00Non-Current Liabilities $ 180,000.00 $ 180,000.00Total Liabilities $ 270,000.00 $ 210,000.00Income from Operations $ 550,000.00 $ 490,000.00Interest Expense $ 95,000.00 $ 86,000.00Instruction: (show your calculations and round to 2 decimal places)From the above information calculate:Current Ratio 2019•Quick Ratio 2019•Debt Ratio 2019•Working Capital 2019•Percentage Change in Working CapitalPercentage Change in Total LiabilitiesTime-Interest-Earned Ratio 2019

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