Case 7â¼´3 Stafford Press* Stafford Press was founded in 1993 as a one-man job-printing firm in a smal l southwestern town. Shortly after its founding, Lucas Stafford, the owner, decided to concentrate on one specialty line of printing. Because of a high degree of technical proficiency, the company experienced a rapid growth. However, Stafford Press suffered from a competitive disadvantage in that the major market for its specialized output was in a metropolitan area over 300 miles away from the companyâ¼s plant. For this reason, in 2003, having accumulated some extra cash to finance a move, the owner decided to move nearer to his primary market. He also decided to expand and modernize his facilities at the time of the move. After some investigation, an attractive site was found in a suburb of his primary market, and the move was made. A balance sheet prepared just prior to t he move is shown in Exhibit 1. The transactions that arose from this move are described in the following paragraphs: 1. The land at the old site, together with the building thereon, was sold f or $149,860 cash.
2. Certain equipment was sold for $35,200 cash. This equipment appeared on the books at a cost of $73,645 less accumulated depreciation of $40,890 for a net book v alue of $32,755. 3. A new printing press was purchased. The invoice cost of this equipment was $112,110. A 2 percent cash discount was taken by Stafford Press so that o nly $109,868 was actually paid to the seller. Stafford Press also paid $450 to a trucker to have this equipment delivered. Installati on of this equipment was made by Stafford Press employees who worked a t otal of 60 hours. These workers rece ived $15 per hour in wages, but their time was ordinarily charged to pr inting jobs at $30.50 per hour, the difference representing an allowance for Overhead ($12.15) and profit ($3.35).
4. Stafford Press paid $140,000 to purchase land on which the new plant was to be built. A rundown building, which Staffordâ¼s appraiser said had no value, was standing on the plot of land. Stafford Press paid $21,235 to have the old bu ilding on the plot of land torn down. In addition, the company paid $13,950 to have permanent drainage facilities installed on the new land. 5. A new composing machine with an invoice cost of $28,030 was purchased. The company pa id $20,830 cash and received a trade-in allowance of $7,200 on a used piece of equipment. The used equipment could have been sold outright for not more than $ 6,050. It had cost $12,000 new, and accumulated depreciat ion on it was $5,200, making the net bo ok value $6,800.
6. The company erected a b uilding at the new site for $561,000. Of this am ount, $136,000 was paid in cash, and $425,000 was borrowed on a mortgage.
7. Trucking and other costs associated with moving equipment from t he old location to the new l ocation and installing it were $8,440. In addition, Staf ford Press employees worked an estimated 125 hours on that part of the move that related to equipment.
EXHIBIT 1 STAFEORD PRESS Condensed Balance Sheet As of December 31, 2003
Assets
Current assets: Cash Other current assets Total current assets
&nbs p;
$395,868 251,790 647,658
liabilities and ownerâ¼s equity
Current Liabilities Common Stock Retained earnings
$160,223 400,000 358,648
Property and equipment: Land Buildings & nbsp; Less: Accumulated depreciation Equipment & nbsp; p; &n bsp; Less: Accumulated depreciation Total assets &nbs p; bsp; $918,871 Total Liabilities and owners equity bsp; $918,871
&nbs p; $ 34,034 350,064 199,056 &nb sp;131,008 265,093 &nbs 178,922
&nb sp; 86,171 &n
&nbs p;
&n
8. During the moving operation, a pie ce of equipment costing $10,000 was dropped and da maged; $3,220 was spent to repair it. Management believed, however, that the salvage value of this equipment had been reduced by $660 from the original estimate o f $1,950 to $l,290. Up until that time, the equipment wa s being depreciated at $805 per year, representing a 10 percent rate after deduction of estimated salvage of $1,950. Accumulated depreciation was $3,220. 1. Analyze the effect of each of these transactions on the items in the balance sheet and income statement. For transactions that affect ownerâ¼s equity, distinguish between those that a ffect the net income of the current year and those that d o not In most cases, the results of your analy sis can be set forth most clearly in the form of journal entries. 2.
Adjust the balance sheet in Exhibit 1 to show the effect of these transactions.
Case 7â¼´3 Stafford Press* Stafford Press was founded in 1993 as a one-man job-printing firm in a smal l southwestern town. Shortly after its founding, Lucas Stafford, the owner, decided to concentrate on one specialty line of printing. Because of a high degree of technical proficiency, the company experienced a rapid growth. However, Stafford Press suffered from a competitive disadvantage in that the major market for its specialized output was in a metropolitan area over 300 miles away from the companyâ¼s plant. For this reason, in 2003, having accumulated some extra cash to finance a move, the owner decided to move nearer to his primary market. He also decided to expand and modernize his facilities at the time of the move. After some investigation, an attractive site was found in a suburb of his primary market, and the move was made. A balance sheet prepared just prior to t he move is shown in Exhibit 1. The transactions that arose from this move are described in the following paragraphs: 1. The land at the old site, together with the building thereon, was sold f or $149,860 cash.
2. Certain equipment was sold for $35,200 cash. This equipment appeared on the books at a cost of $73,645 less accumulated depreciation of $40,890 for a net book v alue of $32,755. 3. A new printing press was purchased. The invoice cost of this equipment was $112,110. A 2 percent cash discount was taken by Stafford Press so that o nly $109,868 was actually paid to the seller. Stafford Press also paid $450 to a trucker to have this equipment delivered. Installati on of this equipment was made by Stafford Press employees who worked a t otal of 60 hours. These workers rece ived $15 per hour in wages, but their time was ordinarily charged to pr inting jobs at $30.50 per hour, the difference representing an allowance for Overhead ($12.15) and profit ($3.35).
4. Stafford Press paid $140,000 to purchase land on which the new plant was to be built. A rundown building, which Staffordâ¼s appraiser said had no value, was standing on the plot of land. Stafford Press paid $21,235 to have the old bu ilding on the plot of land torn down. In addition, the company paid $13,950 to have permanent drainage facilities installed on the new land.
5. A new composing machine with an invoice cost of $28,030 was purchased. The company pa id $20,830 cash and received a trade-in allowance of $7,200 on a used piece of equipment. The used equipment could have been sold outright for not more than $ 6,050. It had cost $12,000 new, and accumulated depreciat ion on it was $5,200, making the net bo ok value $6,800.
6. The company erected a b uilding at the new site for $561,000. Of this am ount, $136,000 was paid in cash, and $425,000 was borrowed on a mortgage.
7. Trucking and other costs associated with moving equipment from t he old location to the new l ocation and installing it were $8,440. In addition, Staf ford Press employees worked an estimated 125 hours on that part of the move that related to equipment.
EXHIBIT 1 STAFEORD PRESS Condensed Balance Sheet As of December 31, 2003
Assets
Current assets: Cash Other current assets Total current assets
&nbs p;
$395,868 251,790 647,658
liabilities and ownerâ¼s equity
Current Liabilities Common Stock Retained earnings
$160,223 400,000 358,648
Property and equipment: Land Buildings & nbsp; Less: Accumulated depreciation Equipment & nbsp; p; &n bsp; Less: Accumulated depreciation Total assets &nbs p; bsp; $918,871 Total Liabilities and owners equity bsp; $918,871
&nbs p; $ 34,034 350,064 199,056 &nb sp;131,008 265,093 &nbs 178,922
&nb sp; 86,171 &n
&nbs p;
&n
8. During the moving operation, a pie ce of equipment costing $10,000 was dropped and da maged; $3,220 was spent to repair it. Management believed, however, that the salvage value of this equipment had been reduced by $660 from the original estimate o f $1,950 to $l,290. Up until that time, the equipment wa s being depreciated at $805 per year, representing a 10 percent rate after deduction of estimated salvage of $1,950. Accumulated depreciation was $3,220. 1. Analyze the effect of each of these transactions on the items in the balance sheet and income statement. For transactions that affect ownerâ¼s equity, distinguish between those that a ffect the net income of the current year and those that d o not In most cases, the results of your analy sis can be set forth most clearly in the form of journal entries. 2.
Adjust the balance sheet in Exhibit 1 to show the effect of these transactions.
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