Accounting for short-term debt and sales tax

Problem 7-26
Accounting for short-term debt and sales tax—two accounting cycles
The following transactions apply to Artesia Co. for 2012, its first year of operations.
1. Received $40,000 cash from the issue of a short-term note with a 5 percent interest rate and a one-year maturity. The note was issued on April 1, 2012.
2. Received $120,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Paid $72,000 cash for other operating expenses during the year.
4. Paid the sales tax due on $100,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until 2013.
5. Recognized the accrued interest at December 31, 2012.
The following transactions apply to Artesia Co. for 2013.

1. Paid the balance of the sales tax due for 2012.
2. Received $145,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Repaid the principal of the note and applicable interest on April 1, 2013.
4. Paid $85,000 of other operating expenses during the year.
5. Paid the sales tax due on $120,000 of the service revenue. The sales tax on the balance of the revenue is not due until 2014.
Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flow for 2012 and 2013.

Problem 8-22
The stockholders’ equity section of the balance sheet for Brawner Company at December 31,
2012, is as follows:

Note: The market value per share of the common stock is $25, and the market value per share of
the preferred stock is $12.

Required
a. What is the par value per share of the preferred stock?
b. What is the dividend per share on the preferred stock?
c. What is the number of common stock shares outstanding?
d. What was the average issue price per share (price for which the stock was issued) of the common stock?
e. Explain the difference between the average issue price and the market price of the common stock.
f. If Brawner declared a 2-for-1 stock split on the common stock, how many shares would be
outstanding after the split? What amount would be transferred from the retained earnings
account because of the stock split? Theoretically, what would be the market price of the
common stock immediately after the stock split?