Lurch Company s December 31 2015 balance sheet follows

During 2016 the #2519

Lurch Company’s December 31, 2015, balance sheet follows:During 2016, the following
transactions occurred:1. To avoid paying monthly rent of $ 5,000 on existing plant facilities, the
company decided to buy a tract of land and construct a building of its own on it. On January 2,
2016, Lurch exchanged 6,000 shares of its common stock to acquire the land; the stock was
selling for $ 25 per share. Construction of the building also began on January 2, 2016. At the
time, Lurch borrowed funds by issuing a 1- year, $ 500,000 note at 12% to help finance the
project. The principal and interest on the note are due January 3, 2017. Construction costs (paid
in cash) that occurred evenly throughout the year totaled $ 700,000. The building was
completed on December 30, 2016, and the move- in to the new building was to occur during the
next week.2. On January 2, 2016, Lurch exchanged its one existing machine plus $ 50,000 for a
newer machine with a fair value of $ 430,000. The new machine is to be depreciated using
straight- line depreciation based on an economic life of 5 years and a residual value of $
55,000.3. Lurch uses a FIFO perpetual inventory system. Lurch sold $ 350,000 of its inventory
for $ 700,000 cash, paid for its beginning accounts payable, and purchased $ 480,000 of
inventory on account during the year.4. On July 31, 2016, Lurch declared and paid a $ 2.50 per
share cash dividend to its shareholders. 5. Lurch is subject to a 30% income tax rate, and
income taxes are accrued at year- end.Required:Prepare Lurch’s income statement and
statement of retained earnings for the fiscal year ended December 31, 2016, and a balance
sheet as of December 31, 2016. Show all supporting journal entries and computations made
during 2016.View Solution:
Lurch Company s December 31 2015 balance sheet follows During 2016 the

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