Chapter Two Exercise 1: Issuance of stock Prepare journal entries to record the issuance of 100,000.

Chapter Two

 Exercise 1: Issuance of stock

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 Prepare journal entries to record the issuance of 100,000 shares of common stock at $20 per share for each of the following independent cases: Jackson Corporation has common stock with a par value of $1 per share.

Cash                                                                            $2,000,000

Additional Paid in capital, common stock                              1,500,000

Common stock                                                                        100,000 Royal Corporation has no-par common with a stated value of $5 per share.

Cash                                                                            $2,000,000

Additional paid-in capital, common stock                              1,500,000

Common stock                                                                                    500,000 French Corporation has no-par comon; no stated value has been assigned.

Cash                                                                            $2,000,000

Common stock                                                                        $2,000,000

Exercise 3. Analysis of stockholdrs’ equity

Star Corporation issued both common and preferred stock during 2006. The stockholders’ equity sections of the company’s balance sheets at the end of 2006 and 2005 follow:

                                                                             2006                                        2005               

Preferred stock, $100 par value, 10%            $580,000                                 $500,000

Common stock, $10 par value                        2,350,000                                1,750,000

Paid-in capital in excess of par value

Preferred                                                             24,000                                     ——–

Common                                                              4,620,000                                3,600,000

Retained earnings                                            8,470,000                                6,920,000

Total stockholders’ equity                               $16,044,00                              $12,770.000

Compute the number of preferred shares that were issued during 2006.

580,000 / 100 = 5800 shares

Calculate the average issue price of the common stock sold in 2006.

2,350,000 – 1,750,000 = 600,000

4,620,000 – 3,600,000 = 1,020,000

1,020,000 + 600,000 = 1,620,000

(580,000 – 500,000) / 100 = 800

1,620,000 / 800 = 2050

By what amount did the company’s paid-in capital increase during 2006?

Preferred 24,000

Common 4,620,000 – 3,600,000 = 1,020,000

Did Star’s total legal capital increase or decrease during 2006? By what amount?

Increase in 19 x 6

$7,574,000 – 5,850,000 = 1,724,000 total paid-in capital

Problem 1: Bond computations: Straight-line amortization

 Southlake Corporation issued $900,000 of 8% bonds on March 1, 2001. The bonds pay interest on March 1 and September 1 and mature in 10 years. Assume the independent cases that follow: Case A – The bonds are issued at 100. Case B – The bonds are issued at 96. Case C – The bonds are issued at 105.

Southlake uses the straight-line method of amortization.

Instructions

Complete the following table:

                                                                                                             Case A                        Case B                        Case C            Cash inflow on the issuance date                                           900,000                       864,000                       945,000 Total cash outflow through maturity                                   1,620,000                     1,620,000                    1,620,000 Total borrowing cost over the life of the bond issue          720,000                           756,000                       675,000 Interest expense for the year ended December 31, 2001   36,000                               37,800                         33,750 Amortization for the year ended December 31, 2001          ——-                                   1,800                           2250 Unamortized premium or unamortized discount as of      ——-                                     ——–                     42,750

December 31, 2001 if any

7. Bond carrying value as of December 31, 2001            ——-                                          34,200

 

Chapter 3

Exercise 4: Basic manufacturing computations

Lyon Manufacturing reported total manufacturing costs (direct materials used, direct labor, and factory overhead) of $549,000 for 2003. Sales and operating expenses were $759,200 and $142,500, respectively. The following information appeared on company balance sheets:

                                                                        For the Year Ended

                                                            12/31/03                      12/31/02         

Finished goods                                    $150,000                     $153,700

Work in process                                   86,400                         74,100

Compute cost of goods manufactured, cost of goods sold, and net income for 2003.

Cost of goods manufactured: 536,700

Cost of goods sold: 540,400

Net income: 3,700

Problem 2: Straightforward manufacturing statements

The following information was extracted from the accounting records of Olympic Company for the year just ended:

Sales                                                                $628,000

Work in process, Jan. 1                                   56,700

Advertising expense                                       23,500

Direct material purchases                                231,500

Finished goods, Dec. 31                                 67,800

Indirect materials used                                    12,300

Direct labor                                                     85,600

Direct materials, Jan. 1                                    45,500

Finished goods, Jan. 1                                    55,900

Direct materials, Dec. 31                                38,200

Sales staff salaries                                           33,300

Work in process, Dec. 31                                47,400

Indirect labor                                                  50,700

Utilities, taxes, insurance, and depreciation are incurred jointly by Olympics manufacturing, sales, and administrative facilities. The costs were as follows:

Utilities                                               $40,000

Taxes                                                   25,000

Insurance                                             10,000

Depreciation                                        36,000

The first three costs are allocated proportionately on the basis of square feet occupied by the three functional areas. A review of the company’s facilities revealed the following percentages would be appropriate: manufacturing, 50%; sales, 30%; and administrative, 20%. Depreciation is allocated 70, 20, and 10%, respectively.

Instructions

Prepare a schedule of cost of goods manufactured in good form.

Direct material                                                                        1,200,000

Direct Labor                                                                            1,500,000

Manufacturing Overhead

Indirect Labor                                     400,000

Utilities on Factory                             200,000

Rent on Factory Building                   300,000

Maintenance of Equipment                 100,000

Total Overhead Cost                                                               1,000,000

Total Manufacturing Cost                                                       3,700,000

Add: Work in Progress, Beginning                                         800,000

2,900,000

Deduct: Work in Progress, Ending                                         600,000

Cost of Goods Manufactured                                                 2,300,000

Prepare an income statement in good form.

Finished Goods, Beginning                                                    500,000

Add: Cost of Goods Manufactured                                       2,300,000

Goods Available for Sale                                                        2,800,000

Deduct: Finished Goods, Ending                                           250,000

Cost of Goods Sold                                                                2,550,000

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