Question 1(30 points)
On December 31, 2014, Rayco Inc. had the following balances (all
balances are normal):
Accounts
Amount
Preferred Stock, ($100 par value, 5% noncumulative, 50,000
shares authorized, 10,000 shares issued and outstanding)
$1,000,000
Common Stock ($10 par value, 200,000 shares authorized,
100,000 shares issued and outstanding)
$1,000,000
Paid-in Capital in Excess of par, Common
150,000
Retained Earnings
700,000
The following events occurred during 2014 and were not recorded:
a.
On January 1, Rayco declared a 5% stock
dividend on its common stock when the market value of the common stock was $15
per share. Stock dividends were distributed on January 31 to shareholders as of
January 25.
b. On
February 15, Rayco reacquired 1,000 shares of common stock for $20 each.
c.
On March 31, Rayco reissued 250 shares of
treasury stock for $25 each.
d. On July
1, Rayco reissued 500 shares of treasury stock for $16 each.
e.
On October 1, Rayco declared full year
dividends for preferred stock and $1.50 cash dividends for outstanding shares
and paid shareholders on October 15.
f.
On December 15, Rayco split common stock 2
shares for 1.
g. Net
Income for 2014 was $275,000.
Requirements:
a.
Prepare journal entries for the
transactions listed above.
b. Prepare
a Stockholders’ section of a classified balance sheet as of December 31, 2014.
Question 2(5
points)
On January 1, 2014, XYZ Company purchased 10,000 shares of the
stock of Rayco, and did obtain significant influence. The investment is
intended as a long-term investment. The stock was purchased for $90,000, and
represents a 30% ownership stake. Rayco made $25,000 of net income in 2014, and
paid dividends of $10,000. The price of Rayco’s stock increased from $10 per
share at the beginning of the year, to $12 per share at the end of the year.
Requirements:
a. Prepare
the January 1 and December 31 general journal entries for XYZ Company.
b. How much
should the XYZ Company report on the balance sheet for the investment in Rayco
at the end of 2014?
Question 3(10
points)
The following is selected information from Rayco Company for the
fiscal years ended December 31, 2014: Rayco Company had net income of
$1,225,000. Depreciation was $500,000, purchases of plant assets were
$1,250,000, and disposals of plant assets for $500,000 resulted in a $50,000
gain. Stock was issued in exchange for an outstanding note payable of $725,000.
Accounts receivable decreased by $25,000. Accounts payable decreased by
$40,000. Dividends of $300,000 were paid to shareholders. Rayco Company had interest
expense of $50,000. Cash balance on January 1, 2014 was $250,000.
Requirements:Prepare Rayco Company’s statement of
cash flows for the year ended December 31, 2014 using the indirect method.
Question 4(15
points)
Rayco Corporation had the following bond transactions during the
fiscal year 2014:
a.
On January 1: issued ten $1,000 bonds
at 102. The 5-year bonds is dated January 1, 2014. The contract interest rate
is 6%. Straight-line amortization method is used. Interest is payable semi-annual
on January 1 and July 1.
b. On July
1: Rayco Corporation issued $500,000 of 10%, 10-year bonds. The bonds dated
January 1, 2014 were issued at 88.5, and pay interest on July 1 and January 1.
Effective interest rate for these bonds is 12%. Straight-line amortization
method is used.
c.
On October 1: issued 10-year bonds $10,000
face value bonds, for $10,853 cash. The bonds have a stated rate of 9%, but an
effective rate of 6%. Straight-line amortization method is used. Interest is payable
on October 1 and April 1.
Requirements:Prepare all general journal entries for the
three bonds issued and any interest accruals and payments for the fiscal year
2014. (Round all calculations to nearest whole dollar.)
Question 5(5
points)
XYZ had sales of $10,000 (100 units at $100 per). Manufacturing
costs consisted of direct labor $1,500, direct materials $1,400, variable
factory overhead $1,000, and fixed factory overhead $500. The company did not
maintain any inventories, so total cost of goods sold was $4,400. Selling
expenses totaled $1,600 ($600 variable and $1,000 fixed), and administrative
expenses totaled $1,500 ($500 variable and $1,000 fixed). Operating income was
$2,500. Round all final answers to nearest dollar or whole number.
Requirements:
a.
What is the break-even point in sales
dollars and in units if the fixed factory overhead increased by $1,700?
b. What is
the break-even point in sales dollars and in units if costs remain as
originally projected?
c.
What would be the operating income if
sales units increased by 25%?
Question 6(5
points)
XYZ manufactures tote bags. The forecasted income statement for
the year before any special orders included sales of $4,000,000 (sales price is
$10 per unit.) Manufacturing cost of goods sold is anticipated to be
$3,200,000. Selling expenses are expected to be $300,000, and operating income
is projected at $500,000. Fixed costs included in these forecasted amounts are
$1,200,000 for manufacturing cost of goods sold and $100,000 for selling
expenses. Rayco is offering a special order to buy 50,000 tote bags for $7.50
each. There will be no additional selling expenses, and sufficient capacity
exists to manufacture the extra tote bags.
Requirements:Prepare an
incremental analysis schedule to demonstrate what amount operating income would
increase or decrease as a result of accepting the special order.
Question 7(5
points)
RSW Company manufactures 10,000 units of wheel sets for use in
its annual production. Costs are as follows: direct materials are $20,000;
direct labor is $55,000; variable overhead is $45,000; and fixed overhead is
$70,000. Rayco Company has offered to sell RSW 10,000 units of wheel sets for
$18 per unit. If RSW accepts the offer, some of the facilities presently used
to manufacture wheel sets could be rented to a third party at an annual rental
of $15,000. Additionally, $4 per unit of the fixed overhead applied to wheel
sets would be totally eliminated.
Requirements:Prepare an
incremental analysis schedule to demonstrate if RSW should accept Rayco’s
offer.