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