Homework answers / question archive /       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: a

      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: a

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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:

a. Jackson Corporation has common stock with a par value of $1 per share.

 

 

b. Royal Corporation has no-par common with a stated value of $5 per share.

   

 

c. French Corporation has no-par comon; no stated value has been assigned.

           

 

 

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

                                                                       

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

 

 

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

 

 

c. By what amount did the company's paid-in capital increase during 2006?

 

 

d. Did Star's total legal capital increase or decrease during 2006? By what amount?

 

 

 

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           

a. Cash inflow on the issuance date               900,000                       864,000                       945,000          

b. Total cash outflow through maturity         1,620,000                    1,620,000                    1,620,000

c. Total borrowing cost over the life              720,000                       756,000                       675,000

    of the bond issue

d. Interest expense for the year ended           36,000                         37,800                         33,750

    December 31, 2001

e. Amortization for the year ended                -------                          1,800                           2250

    December 31, 2001

f. Unamortized premium or unamortized      -------                          --------                         42,750

    discount as of December 31, 2001 if any

g. Bond carrying value as of                          -------                          34,200                        

    December 31, 2001

 

 

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

 

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

 

b. Prepare an income statement in good form.