Following are the financial statements for Griffin Inc. for the
year 2017: Additional information: Griffin Inc. has authorized
500,000 shares of 10%, $10 par value, cumulative preferred stock.
There were 100,000 shares issued and outstanding at all times
during 2017. The firm also has authorized 5 million shares of $1
par common stock, with 4 million shares issued and outstanding. On
January 1, 2017, Griffin Inc. acquired an asset, a piece of
specialized heavy equipment, for $8 million, using cash the company
had in the bank. The asset is depreciated using the straight-line
method over eight years with zero salvage value. Required The
management of Griffin Inc. is considering the financial statement
impact of methods of financing that could have been used to acquire
the equipment. For each alternative (a) and (b), provide the
additional entries needed and indicate the effect on the accounting
equation, and prepare revised 2017 financial statements. Assume
that the following alternative actions would have taken place on
January 1, 2017: a. Instead of acquiring the equipment with cash on
hand, Griffin Inc. issued bonds for $8 million and purchased the
equipment with the proceeds of the bond issue. Assume that the bond
interest of $0.5 million was accrued and paid on December 31, 2017.
A portion of the principal also is paid each year for eight years.
On December 31, 2017, the company paid $1 million of principal and
anticipated another $1 million of principal to be paid in 2018.
Assume that the equipment would have an eight-year life and would
be depreciated on a straight-line basis with zero salvage value. b.
Instead of acquiring the equipment with cash on hand, Griffin Inc.
issued 200,000 additional shares of 10% preferred stock to raise $8
million and purchased the equipment for $8 million with the
proceeds from the stock issue. Dividends on the stock are declared
and paid annually. Assume that a dividend payment was made on
December 31, 2017. Assume that the equipment would have an
eight-year life and would be depreciated on a straight-line basis
with zero salvage value. View Solution:
Following are the financial statements for Griffin Inc for the
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