Question

Using the money from their recent bond issue, Terry’s management has decided to declare an additional $562,500 dividend. The date of declaration is December 30, Year 3. The date of record will be January 15, Year 4, and the date of payment will be January 30, Year 4.

As an additional signal to the market, Terry’s management repurchased 205,000 shares of Terry’s common stock on December 15, Year 3 for $8.00 a share.

Terry’s management would like to know the effect of the sale on the following ratios:

• Current Ratio

• ROA

1. Calculate each of the two (2) ratios before you make any adjustments.

2. Make the appropriate journal entries, if any, to account for Terry’s extra dividend and stock repurchase (including any necessary changes to income tax expense).

3. Make any necessary changes to the financial statements.

Terry Co. Multi-Step Income Statement For the Year Ended December 31, Year 3 Sales Revenue Less: Sales Discounts $66,600,000 $666,000 Sales Returns $5,827,500 $6,493,500 $60,106,500 Net Sales Revenue Cost of Goods Sold $36,534,013 $23,572,487 Gross Profit erating Activities Selling Expenses Advertising Expense Bad Debt Expense Miscellaneous Selling Expenses Sales Force Salaries Expense Selling Commissions Expense Shipping Expense $1,248,750 $566,100 $324,675 $915,750 $3,330,000 $545.288 Total Selling Expenses Administrative Expenses 6,930,563 Executive Salaries Expense Depreciation & Amortization Expense$1,998,000 Insurance Expense Miscellaneous Admin. Expenses Office Supplies Expense R&D Expense Utilities Expense $2,913,750 $241,425 $32,884 $258,075 $999,000 $499,500 Total Administrative Expenses Income from Operations $6,942,634 $13,873,197 $9,699,290 er Gains an Rent Revenue Interest Expense $208,125 57,054) ($248,929) $9,450,361 ($2,362,590 $7,087,771 Income from Continuing Operations before Taxes Income Tax Expense Net Income EPS 2.66

Answer 1

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