All numbers must be correct to the closest dollar. Ehler Corporation was incorpo

Question

All numbers must be correct to the closest dollar. Ehler Corporation was incorporated on January 1, 2016. Ehler sells rock climbing products and also operates an ndoor climbing facility for climbing enthusiasts. At the time of incorporation, Ehler Corporation's Stockholders' Equity accounts were as follows Preferred Stock (796, $100 par noncumulative, 5,000 shares authorized Common Stock ($4 stated value, 300,000 shares authorized) Paid in Capital in Excess of Par Value Preferred Paid-in Capital in Excess of Par Value Common Retained Earnings Treasury Stock (5,000 common shares) S 300,000 $1,000,000 $15,000 S 480,000 $688,000 $ 40,000 During the last part of 2016, Ehler had the following transaction related to liabilities. Issued a $12,000 note to Pippen to purchase inventory The three-month notes payable bears 6% interest and is due December 1 (Ehler uses a perpetual inventory system) Recorded accrued interest for Pippen note Issued a $16,500, 8%, 4-month note to Prime Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1 Recorded accrued interest note for Pippen note and the Prime Bank Note Issued a $26,000 note and paid $8,000 cash to purchase a vehicle to transport clients to nearby climbing sites as part of a new series of climbing classes This note bears interest of 6% and matures in 12 months Recorded accrued interest for the Pippen note, the Prime Bank note, and the vehicle note September 1 September 30 October 1 October 31 November 1 November 30 December Pid principal and interest on the Pippen note December 31 Recorded accrued interest for the Prime Bank note and the vehicle note During 2016, Ehler had the following transaction related to Shareholder's Equity February1 ssued 5,000 common stock for $30,000 March 20 October 1 December Declared a $0.50 per share cash dividend to common stockholders of record on Purchased an additional shares of common treasury stock for $7 per share Declared a 7% cash dividend on preferred stock, payable December 31, 2016 December 15, payable December 31, 2016 Determined that net income for the 2016 year was 580,000 Paid dividend declared on October 1 and December 1 December 31 Required a) Prepare the journal entries for the transactions above and post the entries to the related T-accounts b) Show the affected sections of balance sheet for December 31 c) Calculate the payout ratio, earnings per share, and Return on Common Shareholder's Equity (ROE)

Explanation / Answer

Journal entries

T-Accounts

(b)

(c)

EHLER CORPORATION General journal for the year ended December 31, 2016 Date Account title Debit credit Feb.1 Cash 30000 Common stock 20000 Additional paid in capital - common stock 10000 (To record issue of 5,000 shares of common stock) Mar.20 Number of treasury shraes purchased in not provided Sept.1 Inventory 12000 Note payable 12000 (To record purchase of inventory on note payable) Sept.30 Interest expense 60 Interest payable 60 (To record interest on $12,000 @6% for one month) Oct.1 Dividend 21000 Dividend payable 21000 (To record dividend decleared on preferred stock) Oct.1 Equipment 16500 Note payable 16500 (To record purchase of climbing wall on note payable) Oct.31 Interest expense 60 Interest payable 60 (To record interest on $12,000 @6% for one month) Interest expense 110 Interest payable 110 (To record interest on $16,500 @8% for one month) Nov.1 Motor vehicle 34000 Cash 8000 Note payable 26000 (To record purchase of motor vehicle on cash and note payable) Nov.30 Interest expense 60 Interest payable 60 (To record interest on $12,000 @6% for one month) Interest expense 110 Interest payable 110 (To record interest on $16,500 @8% for one month) Interest expense 130 Interest payable 130 (To record interest on $26,000 @6% for one month) Dec.1 Note payable 12000 Interest payable 180 Cash 12180 (To record payment of principal andinterest on inventory note) Dec.1 Dividend 125000 Dividend payable 125000 (To record declaration of dividend @0.50 per share on 250,000 shares) Dec.31 Interest expense 110 Interest payable 110 (To record interest on $16,500 @8% for one month) Interest expense 130 Interest payable 130 (To record interest on $26,000 @6% for one month) Dec.31 Dividend payable 146000 Cash 146000 (To record payment of cash dividend ) Dec.31 Retained earnings 146000 Dividend 146000 (To record closing of devidend account to reteained earnings) Dec.31 Income summary 580000 Retained earnings 580000 (To record closing of net income to retained earnings)

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