Chapter Two and Three Problems
Please complete the following 7 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.
Chapter 2 Exercise 1
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 / $2,000,000.00
Common Stock / $100,000.00
Paid in capital in excess of par value / $1,900,000.00
- Royal Corporation has no-par common with a stated value of $5 D share.
Cash / $2,000,000.00
Common Stock / $500,000.00
Paid in capital in excess of par value / $1,500,000.00
- French Corporation has no-par common; no stated value has been as signed
Cash / $2,000,000.00
Common Stock / $2,000,000.00
Chapter 2 Exercise 3
3. Analysis of stockholders' equity
Star Corporation issued both common and preferred stock during 19X6. The stockholders' equity sections of the company's balance sheets at the end of 19X6 and 19X5 follow.
19X6 / 19X5Preferred 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 / $16,044,000 / $12,770,000
- Compute the number of preferred shares that were issued during 19X6.
$580,000.00$80,000.00
-$500,000.00 $100.00 = 800 Shares issued during 19X6
$80,000.00
- Calculate the average issue price of the common stock sold in 19X6.
$2,350,000.00 $1,750,000.00 $6,970,000.00
+$4,620,000.00+$3,600,000.00-$5,350,000.00
$6,970,000.00 $5,350,000.00 $1,620,000.00
$2,350,000.00$600,000.00$1,620,000.00
-$1,750,000.00 10 = 60,00060,000=$ 27
$600,000.00
Average issue price of the common stock sold in 19X6 = $27
- By what amount did the company's paid-in capital increase during 19X6?
$24,000.00$4,620,000.00 $24,000.00
0.00$3,600,000.00+$1,020,000.00
$24,000.00$1,020,000.00$1,044,000.00
Paid-in capital increase during 19X6? = $ 1,044,000.00
- Did Star's total legal capital increase or decrease during 19X6? By what amount?
$580,000.00 $2,350,000.00 $80,000.00
-$500,000.00-$1,750,000.00+$6,00,000.00
$80,000.00 $6,00,000.00$680,000.00
Legal capital increased by$680,000.00
Chapter 2 Problem 1
1. Bond computations: Straight-line amortization
Southlake Corporation issued $900,000 of 8% bonds on March 1, 19X1. 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
- Total cash outflow through maturity
- Total borrowing cost over the life of the bond issue
- Interest expense for the year ended December 31, 19X1
- Amortization for the year ended December 31, 19X1
- Unamortized premium as of December 31, 19X1
- Unamortized discount as of December 31, 19X1
- Bond carrying value as of December 31, 19X1
Case A:
Cash inflow on issuance date = $900,000.00
Total cash outflow =$1,620,000.00$900,000.0072,000.00 $720,000.00
x.08 x 10+$900,000.00
72,000.00 720,000.00$1,620,000.00
Total borrowing cost =$720,000.00 $900,000.00
–$1620000.00
=$720,000.00
Interest expense Dec. 31 19x1 = $54,000 $900,000.00$72,000.00
x .08x 9/12
$72,000.00 $54,000
Case B:
Cash inflow on issuance date = $864,000.00$900000.00
x .96
$864,000.00
Total cash outflow = $1,620,000.00$900,000.00$72,000.00 $720,000.00
x .08x 10 +$900,000.00
$72,000.00$720,000.00 $1,620,000.00
Total borrowing cost = $756,000.00 $864,000.00
–$1620,000.00
-$756,000.00
Amortization Dec. 31, 19X1 = $2700.00 $900,000.00$36,000.00$3600.00
– $864,000.0010 =$3600.00x 9/12
$36,000.00 $2700.00
Interest expense Dec. 31 19x1 = $56,700.00 $54,000.00
+ $2,700.00
$56,700.00
Unamortized discount Dec. 31 19x1 =$33,300.00 $900,000.00$36,000.00
–$864,000.00–$2,700.00
$36,000.00$33,300.00
Bond carrying value Dec. 31 19X1 =$866,700.00$900,000.00
– $33,300.00
=$866,700.00
Case C:
Cash inflow on issuance date =$945,000.00 $900,000.00
x 1.05
$945,000.00
Total cash outflow = $1,620,000.00$900,000.00$72,000$720,000.00
x .08x 10$900,000.00
$72,000$720,000.00$1,620,000.00
Total borrowing cost =$675,000.00 $945,000.00
– $1,620,000.00
-$675,000.00
Amortization Dec. 31, 19X1 =$3375.00 $945,000.00$45,000.00$4,500.00
-$900,000.0010=$4,500.00x 9/12
$45,000.00$3375.00
Interest expense Dec. 31 19X1 =$50,625.00 $54,000.00
– $3,375.00
$50,625.00
Unamortized premium Dec. 31 19X1 = $41,625.00 $945,000.00$45,000.00
– $900,000.00$3,375.00
$45,000.00$41,625.00
Bond carrying value Dec. 31 19X1 =$941,625.00$900,000.00
+$41,625.00
$941,625.00
Chapter 3 Exercise 1
1. Product costs and period costs
The costs that follow were extracted from the accounting records of several different manufacturers:
- Weekly wages of an equipment maintenance worker
Product Cost – Not easily traced
- Marketing costs of a soft drink bottler
Period cost
- Cost of sheet metal in a Honda automobile
Product cost – EASILY traced
- Cost of president's subscription to Fortune magazine
Period cost
- Monthly operating costs of pollution control equipment used in a steel mill
Product cost – NOT easily traced
- Weekly wages of a seamstress employed by a jeans maker
Product cost – EASILY traced
- Cost of compact discs (CDs) for newly recorded releases of Rush, Billy Joel, and Bryan Adams
Product cost – EASILY traced
Chapter 3 Exercise 2
2. Definitions of manufacturing concepts
Interstate Manufacturing produces brass fasteners and incurred the following costs for the year just ended:
Materials and supplies used
Brass$75,000
Repair parts16,000
Machine lubricants 9,000
Wages and salaries Machine operators 128,000
Production supervisors 64,000
Maintenance personnel 41,000
Other factory overhead Variable 35,000
Fixed 46,000
Sales commissions20,000
Compute:
- Total direct materials consumed
$75,000
- Total direct labor
$128,000.00
- Total prime cost $75,000.00
+$128,000.00
$203,000.00
A.)Total conversion cost $128,000.00
+ $16,000.00
+ $9,000.00
+ $64,000.00
+ $41,000.00
+ $35,000.00
+ $46,000.00
$339,000.00
Chapter 3 Exorcise 5
5. Schedule of cost of goods manufactured, income statement
The following information was taken from the ledger of Jefferson Industries, Inc.:
Direct labor / $85,000 / Administrative expenses / $59,000Selling expenses / 34,000 / Work in. process
Sales / 300,000 / Jan. 1 / 29,000
Finished goods / Dec. 31 / 21,000
Jan. 1 / 115,000 / Direct material purchases / 88,000
Dec. 31 / 131,000 / Depreciation: factory / 18,000
Raw (direct) materials on hand / Indirect materials used / 10,000
Jan. 1 / 31,000 / Indirect labor / 24,000
Dec. 31 / 40,000 / Factory taxes / 8,000
Factory utilities / 11,000
Prepare the following:
- A schedule of cost of goods manufactured for the year ended December 31.
Jefferson Industries Inc
Schedule of Cost of Goods Manufactured
For the year ended December 31
Direct Materials:
Direct materials, Jan 1 / 31,000
Add: Purchases / 88,000
Total direct materials available for use / 119,000
Less Direct materials, Dec 31 / (40,000)
Total direct materials used / 79,000
Direct Labor / 85,000
Manufacturing Overhead:
Depreciation – Factory / 18,000
Indirect materials used / 10,000
Indirect labor / 24,000
Factory taxes / 8,000
Factory utilities / 11,000
Total Manufacturing Overhead / 71,000
Total Manufacturing Cost / 235,000
Add: Work in progress, Jan 1 / 29,000
Total goods in process / 264,000
Less: Work in process, Dec 31 / (21,000)
Cost of Goods Manufactured / $243,000
- An income statement for the year ended December 31.
Jefferson Industries Inc
Income Statement
For the year ended December 31
Sales: / $300,000
Cost of Goods Sold:
Finished goods, Jan 1 / $115,000
Add: Cost of Goods Manufactured / $243,000
Cost of Goods Available for Sale / 358,000
Less: Finished goods, Dec 31 / (131,000)
Cost of Goods Sold / 227,000
Gross Profit / 73,000
Operating Expenses:
Selling Expenses: / 34,000
Administrative Expenses / 59,000
Total Operating Expenses / 93,000
Net Loss / (20,000)
Chapter 3 Problem 3
3. Manufacturing statements and cost behavior
Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.
Per Unit / Variable Cost / Fixed CostDirect materials / $4.50 / $ —
Direct labor / 6.5 / —
Factory overhead / 9 / 50,000
Selling / — / 70,000
Administrative / — / 135,000
Production and sales totaled 20,000 rolls and 17,000 rolls, respectively There is no work in process. Tampa carries its finished goods inventory at the average unit cost of production.
Instructions:
- Determine the cost of the finished goods inventory of light-gauge aluminum.
$4.50$20.00$400,000.00$450,000.00 20,000
+$6.50x20,000$50,000.00 20,000=22.5-17,000
+$9.00$400,000 $450,000.00 3,000
$20.00
22.5
X3,000
$67,500
Cost of the finished goods inventory of light-gauge aluminum= $67,500
- Prepare an income statement for the current year ended December 31
Tampa Foundry
Income Statement
For the year ended December 31
Sales: / $612,000
Cost of Goods Sold: / 382,500
Gross Profit / 229,500
Operating Expenses:
Selling Expenses / $70,000
Administrative Expenses / 135,000
Total Operating Expenses / 205,000
Net Income / $24,500
- On the basis of the information presented:
- Does it appear that the company pays commissions to its sales staff? Explain.
By analyzing the Income Statement’s Selling Expenses of $70,000 to the Net Income $24,500, we find the company spent 65% more that was earned in Net Income. While the Selling Expenses also consist of expenses such as: commissions, marketing and advertising, it would seem that the highest expense would appear to be commissions paid out to sales staff.
- What is the likely effect on the $4.50 unit cost of direct materials if next year's production increases? Why?
If next year’s production increases, the unit cost of direct materials will remain unchanged. Walther tells us, “Volume changes do not change the per-unit cost but do change total cost.” (Walther, 2012) The company will record higher costs for direct materials as the production increases, however will remain proportionally equivalent as long there are not any price changes to the direct materials.
Reference:
Walther, (2012) Principles of Accounting: Volume II (2012). San Diego, CA: Bridgepoint Education.
Retrieved from:
Week 2, DQ 1: Stock Features
What is callable preferred stock? Why do corporations issue such stock? Given the different features that are associated with stock (callable, cumulative, preferred, etc.), what type of stock would you want to buy personally and why?
Review your peers’ posts. Respond to at least two of your classmates, letting them know if you agree with their type of desired stock and whether your answer would change (and why) based on:
a. Different economic conditions
b. State of the company (if the company is in a growth phase versus a mature state).
1. What is callable preferred stock?
We learned this week that callable preferred stocks are issued by the company with an option to repurchase the stocks at some point in the future. What does this mean to me? Businesses and corporations sell stocks as a method to raise cash. We buy these stocks as an investment with the expectation to earn dividends. By investing in a callable preferred stock, the investor will normally receive a higher fixed interest rate on dividends that are paid after the company pays its taxes. Another advantage to purchasing a preferred stock is that, if a company misses a dividend, it must make this up to the investors. Dividends will not be paid to common stockholders until all missed dividends have been paid to preferred stockholders.
2. Why do corporations issue such stock?
“Corporations issue preferred stock to raise capital without sacrificing control, boost the return earned by common stock-holders, and appealing to investors who believe that the corporation’s common stock is too risky or that the expected return on common stock is too low.”(Purdue Accounting for Corporations) A corporation that wishes to raise additional funds while still having the option to close the debt at their convenience may issue these type of stocks. While it is a potentially short term debt for the business, it also provides investor’s a safe risk-free method to earn returns from their investments. One interesting note that I found on the Money-Zine Website regarding preferred stocks is, “Specifically, preferred stock dividends are treated like an expense for rate-making purposes. That means utilities can pass on the cost of the dividend payment in the rates they charge their customers. Under these conditions, dividends on preferred stock act very much like interest expense on debt. This also means preferred stock is used more in the utility sector than anywhere else.” (Money-ZIne, 2012) Have you ever wondered why your utility rates are high? I know I have and this may be part of culprit.
3.Given the different features that are associated with stock (callable, cumulative, preferred, etc.), what type of stock would you want to buy personally and why?
As an individual who has just recently been able to overcome past credit-card and loan debt, I am now a point in my life where I can consecutively live above my means and consistently put funds away into savings. This places me at a point in my life where I am becoming very curious about investing into stocks. As a traditionally “safe” individual, I believe I would lean toward the preferred stocks. Common stocks have the highest potential to earn the investor the greatest return on their investments but come at higher risk of fluctuation and loss in the market. Another argument against common stocks is the fact that dividends are paid after those investors who have preferred stocks. Preferred stocks will pay the investor a dividend each period however there often is a call back option held by the company. If this option is exercise, there is often a premium over par value. So, for me, I would prefer a such as a preferred stock so I can make steady progress on my investment. I might not get rich over night, but there is little risk of losing my investment.
References:
(2012) Purdue Accounting for Corporations, Retrieved from:
(2012) Money-Zine Website, Retrieved from:
Week 2, DQ 2, Role of Management Accounting
Review the roles of management accounting within a company. What is the most important role of management accounting? How is that different than financial accounting?
Review the roles of management accounting within a company, What is the most important role of management accounting is?
We learned in this week’s reading that managerial accountants are crucial in today’s corporations and businesses. Walther points out, “Managers must plan, direct, and control an organization. These inter-related duties are all supported by information provided by the managerial accountant and serve to shape the role of a business's internal accounting unit.” (Walther,2012)I myself only considered accountants from the financial perspective; I now realize there is a substantial non-financial side of accounting as well. In today’s business, managerial accountants provide a variety of information to management and act as strategic business partners in support of management’s role in decision making and managing the organization’s activities. I personally feel the most important role that the management accountant brings to the table is the responsibility to assess the organization’s competitive position, and working with other managers to ensure the organization’s competitiveness. To me this is the first and most important step. From there, accountants can then plan, organize, assign responsibility and the motivate the employees to meet the company goals and standards.
How is that different than financial accounting?
Once again, Walther points out, “The financial accountant's work is centered on measurement and reporting, often tied to a "rules-based" approach. The managerial accountant's work is operationally hands on and supports management decision making. The managerial accountant is not tied to defined accounting rules and must use innovation and judgment to assemble methods and measures that help drive organization success.” (Walther, 2012) From my perspective, I see managerial accountants as leaders, taking a proactive role in both the strategic and day-to-day decisions that face a business. Managerial Accountants provide information and actively take part in decision making and planning operational activities. They are there to assign responsibilities and motivate other employees toward the organization’s goals. They measure the performance of activities, subunits, managers, and other employees within the organization. And as I mentioned above, assess the organization’s competitive position, and working with other managers to ensure the organization’s long-run competitiveness in its industry. Essentially, these are all internal processes that are not required by law. Financial accountant’s roles on the other hand are required by law and the reports, balance sheets, income sheets, statements of cash flows and financial ratios are directed primarily to external customers such as financial firms and shareholders.
References
Walther. (2012).Principles of Accounting: Volume II(1st ed.). San Diego, CA: Bridgepoint Education. Retrieved on November 25, 2012 from: