Xytech, Inc. |
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Beginner |
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Xytech was a high-tech company that had been started by three partners in early 1990. Their successful product designs led to rapid growth of the company, with resulting needs for additional capital to support the growth. The company’s major financing transactions for its first 10 years of existence, including its earnings history are as follows:
1990 | The firm began as a partnership on January 10, with the three equal partners, Able, Baker, and Cabot, each contributing $100,000 capital. The accountant set up a capital account for each of the three partners. On April 1 the partners arranged with a bank a $100,000, 8 percent, five-year “balloon” note, which meant that only quarterly interest was payable for five years, with the principal due in full as a lump sum at the end of the fifth year. The firm’s net loss for 1990 was $54,000. A salary for each partner was included in the calculation of net loss; no other payments were made to the partners. |
1991 | To help the firm deal with a short-term liquidity problem, on April 26, Cabot liquidated some personal securities and loaned the firm $50,000 proceeds. Cabot expected to be repaid these funds in no more than one year. In October Baker’s ownership interest in the firm was sold out equally to Able and Cabot, with Baker receiving a total of $110,000 in notes and cash from Able and Cabot. The firm had $12,000 net income for the year. Able and Cabot planned to incorporate the firm as of January 1, 1992. Prepare a statement of invested capital for the partnership as of December 31, 1991. |
1992 | The firm was incorporated on January 1, as planned. The articles of incorporation authorized 500 shares of $100 par value common stock, but only 100 shares were issued, 50 each to Able and Cabot. On March 21 the bank agreed to increase the $100,000 balloon note to $150,000; the $50,000 proceeds were used to repay Cabot’s $50,000 loan. The net income for the year was $26,000. |
1993 | In anticipation of a public offering of Xytech, Inc., stock, the firm effected a 1,000-for-1 stock split in November. The year’s net income was $43,000. Calculate the 1993 earnings per share amount. |
1994 | In January the firm went public. An investment banker sold 100,000 newly issued shares at $7.75 per share. The banker’s fee and other issuance costs amounted to $55,000. The year’s net income (after stock issuance costs) was $68,000. Prepare a statement of invested capital as of December 31, 1994. |
1995 | In January the company issued 500 20-year bonds with a face value of $1,000 each and a coupon rate of 6 percent. Although the bonds were issued at par, because of issuance costs the proceeds were only $950 per bond. Part of the proceeds was used to repay the firms prior long-term debt. The year’s net income was $85,000. |
1996 | In April Able and Cabot each sold 25,000 of their common shares, receiving proceeds of $11 per share. The company earned net income of $111,000. On December 31, the firm declared a dividend of $0.15 per share, payable January 31, 1997, to holders of record as of January 15. Prepare a statement of invested capital as of December 31, 1996. |
1997 | Feeling that the market was under-valuing the company’s stock, in June the . . . |
Assignment
- Prepare a journal entry (or make entries to a T account) for each accounting-related event described above. You should be explicit about what noncurrent liability and owners’ equity (invested capital) accounts are affected by the transactions; but effects on assets (including cash) and current liabilities can be recorded in a single account, "A&CL."
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