HAYES PUBLIC RELATIONS: A FINANCING AND INVESTING
EXERCISE CASE STUDY SOLUTION
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SYNOPSIS
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On September 5, 2023, Luke Hayes, owner of Hayes Public Relations (HPR), was reviewing the company’s
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financial performance for its seventh fiscal year. Located in Toronto, Ontario, Canada, HPR was a public
relations agency. Hayes had already reviewed the company’s operating decisions for the previous fiscal
year and was now preparing to review the company’s financing and investing transactions for the fiscal
year ending August 31, 2023.
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OBJECTIVES
So
• Finance leases – inception of leases, lease payments, depreciation of leased assets, interest accrual on
lease obligations, lease expiration;
• Bonds payable – bond recall, bond interest accrual and amortization at coupon payment dates and fiscal
year-end;
• Operating lines of credit – using the line of credit, accruing interest;
• Equity financing – issuance, stock and cash dividends, preferred share conversions to common shares,
share repurchases/retirement;
• Trading investments, bonds – sale, interest accrual, year-end fair market valuation;
• Trading investments, stocks – purchase, sale, stock and cash dividends, stock splits, year-end fair
market valuation.
The Case Solution Starts From page 4
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ASSIGNMENT
Record all financing and investing transactions for HPR’s fiscal year ending August 31, 2023, in an
accounting journal. List the debit and credit for each transaction.
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ANALYSIS
All journal entry solutions and timelines for HPR are provided in Exhibit -1.
The Case Solution Starts From page 4
, EXHIBIT -1: HAYES PUBLIC RELATIONS TIMELINES AND JOURNAL ENTRIES
Entry Transaction Debit Credit
OPENING BALANCES
O/B Cash 126,187
Accounts receivable 18,972
Trading investments, bonds 68,797
Bond interest receivable 1,896
Office under lease 174,458
Accumulated depreciation – office under lease 82,382
Office equipment under lease 17,871
Accumulated depreciation – office equipment under lease 16,134
Interest payable, bonds 1,000
Interest payable, lease 2,960
6% Bond payable 102,610
Lease obligation, office 88,803
Common stock 81,000
Contributed surplus, common stock 750
Stock dividend distributable 4,650
Retained earnings 27,892
DEBT FINANCING
Office Finance Lease
Sep. 1/22 Nov. 1/22 Aug. 31/23
2 months 10 months
FYB Lease FYE
payment Accrue interest
& depreciate
1. Lease obligation, office 28,448
Lease interest expense 592
Lease interest payable 2,960
Cash 32,000
November 1, 2022: Office lease payment
Cash payment: $32,000
Interest payable: $2,960
Interest expense: $88,803 × 4% × 2/12 = $592
Lease obligation, office: $32,000 – $2,960 – $592 = $28,448
2. Depreciation expense 29,076
Accumulated depreciation, office under lease 29,076
August 31, 2023: Depreciate office under lease at fiscal year-end
Depreciation expense: $174,458 ÷ 6 years = $29,076
The Case Solution Starts From page 4
EXERCISE CASE STUDY SOLUTION
e
pl
SYNOPSIS
m
On September 5, 2023, Luke Hayes, owner of Hayes Public Relations (HPR), was reviewing the company’s
Sa
financial performance for its seventh fiscal year. Located in Toronto, Ontario, Canada, HPR was a public
relations agency. Hayes had already reviewed the company’s operating decisions for the previous fiscal
year and was now preparing to review the company’s financing and investing transactions for the fiscal
year ending August 31, 2023.
n
tio
lu
OBJECTIVES
So
• Finance leases – inception of leases, lease payments, depreciation of leased assets, interest accrual on
lease obligations, lease expiration;
• Bonds payable – bond recall, bond interest accrual and amortization at coupon payment dates and fiscal
year-end;
• Operating lines of credit – using the line of credit, accruing interest;
• Equity financing – issuance, stock and cash dividends, preferred share conversions to common shares,
share repurchases/retirement;
• Trading investments, bonds – sale, interest accrual, year-end fair market valuation;
• Trading investments, stocks – purchase, sale, stock and cash dividends, stock splits, year-end fair
market valuation.
The Case Solution Starts From page 4
, e
pl
m
Sa
ASSIGNMENT
Record all financing and investing transactions for HPR’s fiscal year ending August 31, 2023, in an
accounting journal. List the debit and credit for each transaction.
n
tio
lu
So
ANALYSIS
All journal entry solutions and timelines for HPR are provided in Exhibit -1.
The Case Solution Starts From page 4
, EXHIBIT -1: HAYES PUBLIC RELATIONS TIMELINES AND JOURNAL ENTRIES
Entry Transaction Debit Credit
OPENING BALANCES
O/B Cash 126,187
Accounts receivable 18,972
Trading investments, bonds 68,797
Bond interest receivable 1,896
Office under lease 174,458
Accumulated depreciation – office under lease 82,382
Office equipment under lease 17,871
Accumulated depreciation – office equipment under lease 16,134
Interest payable, bonds 1,000
Interest payable, lease 2,960
6% Bond payable 102,610
Lease obligation, office 88,803
Common stock 81,000
Contributed surplus, common stock 750
Stock dividend distributable 4,650
Retained earnings 27,892
DEBT FINANCING
Office Finance Lease
Sep. 1/22 Nov. 1/22 Aug. 31/23
2 months 10 months
FYB Lease FYE
payment Accrue interest
& depreciate
1. Lease obligation, office 28,448
Lease interest expense 592
Lease interest payable 2,960
Cash 32,000
November 1, 2022: Office lease payment
Cash payment: $32,000
Interest payable: $2,960
Interest expense: $88,803 × 4% × 2/12 = $592
Lease obligation, office: $32,000 – $2,960 – $592 = $28,448
2. Depreciation expense 29,076
Accumulated depreciation, office under lease 29,076
August 31, 2023: Depreciate office under lease at fiscal year-end
Depreciation expense: $174,458 ÷ 6 years = $29,076
The Case Solution Starts From page 4
