Prepare a complete set of financial statements for the year ending December 31, 2016, use the indirect method for the Statement of Cash Flows. The tax rate is 40% (federal, state, and local combined). Please round all data to the nearest dollar, with the exception of earnings per share, which is round to the nearest $0.01. Everything must be submitted in Excel and proper format counts. Treat this as though you are the accountant and sending me, the president with the financials for presentation to the stockholders. Disclosure notes are not required

MAGIC, Inc.

 

Long-Term Debt

NOTES

  1. $100,000 note issued to Novelty, Inc on 7/1/14, payable in $25,000 payments on June 30th for 4 years with a simple interest of 8% per annum
  2. $30,000 three-year note issued to Rings Galore, LTD on 10/1/15, payable in equal installments on September 30th with a simple interest of 6% per annum.

BONDS

  1. 500 $1,000 8-year debentures dated 4/1/12, stated interest rate of 7.5%, payments made semiannually on March 30th and September 30th. The bonds were sold to a single investor on 7/1/12 when the prevailing market rate was 8%.

 

LOANS

  1. $1,800,000 mortgage on warehouse, 20 years at 4%, dated 5/1/2010, $200,000 down payment; first payment made 6/1/2010, payments are due on the 1st of each month.

 

Property, Plant and Equipment

Warehouse – Book: 40 years, straight line; Tax: 39 years, mid-month

IRS Pub 946 Table A-7a

Land FMV at date of purchase, $250,000, balance to warehouse

Computers – see spreadsheet – Book: 5 years, Tax: 5 years, half-year

IRS Pub 946 Table A-7a

Storage Units – purchased 5/15/2010 for $175,000, no residual value

Book: 7 years, straight line; Tax – 7 years, MACRS, half-year

IRS Pub 946, Table A-1

Fork Lifts (leased – see below) Book: 10 years, straight line; Tax – – 7 years, MACRS, half-year

                                IRS Pub 946, Table A-1

 

 

Capital Leases  

Equipment – Leased 2 forklifts for $1,200 per quarter on 4/1/2014 for 5 years, the forklifts can be purchase for $980 each at the end of the lease, when their FMV is expected to be $1,500 each.  The first payment is made 4/1/2014.

 

Investment

                Short-Term

                These investments are of various securities and are considered Trading Securities.  The amount on the December 31, 2015 Balance Sheet represents the initial cost and fair market value at December 31, 2015.  The fair market value of the securities was $89,250 as of December 31, 2016.

 

 

Non-current

                The investments are of various securities and are considered Available-for-Sale.  The amount on the December 31, 2015 Balance Sheet represents the initial cost and fair market value at December 31, 2015.  The fair market value of the securities was $493,725 as of December 31, 2016.

 

Payroll and Benefits

The final pay period of the year ends on December 31, 2016 and is paid on January 6, 2017.  The previous pay date was December 23, 2016 for the pay period ending December 24, 2015.  The company has defined compensation plan where the company matches each employee’s contribution up to 5% of their salary. Currently all employees are contributing at 5% of their salary.  Deposits for the 401k are made on the Tuesday following the end of the payroll period and are not accrued.

Unemployment expenses are 5% of the first $8,000 of annual salary and are due to be paid by January 31, 2017 in total.  Medicare and Social Security is withheld at 7.65% from each employee and the same is an expense for the company.

The company pays for health and life insurance for all employees.  The annual amounts are $29,400 and $8,400 respectively and are paid at the beginning of the month for that month.

 

Other Items

On 1/12/16 the president was given an option on 5,000 shares, exercisable after 1/31/18 for $5.00 per share.

A 5% stock dividend was issued on 7/1/16.

 

Operational expenses include the following:

Postage & delivery

Utilities – electricity, gas, internet, telephone

Office expense

Real estate and personal property taxes

 

12/31/16 account balances

Accounts Receivable, net             29,275

Accounts Payable                            18,195

Accrued Expenses                              1,670

 

 

INSTRUCTIONS

 

Prepare a complete set of financial statements for the year ending December 31, 2016, use the indirect method for the Statement of Cash Flows.  The tax rate is 40% (federal, state, and local combined).  Please round all data to the nearest dollar, with the exception of earnings per share, which is round to the nearest $0.01.  Everything must be submitted in Excel and proper format counts.  Treat this as though you are the accountant and sending me, the president with the financials for presentation to the stockholders.  Disclosure notes are not required

 

Hints:

I have given you balances for 12/31/15 for assets and all the debt.  This should provide you with several check figures for your amortization and depreciation tables.

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