acc206 week 2 exercise answers september 2013 updated 498377

1. Analysis of stockholders’ equity

Star Corporation issued both common and preferred stock during 20X8. The stockholders’ equity sections of the company’s balance sheets at the end of 20X8 and 20X7 follow.

20X8 20X7

Preferred stock, $100 par value, 10% $600,000 $500,000

Common stock, $10 par value 2,350,0001,550,000

Paid-in capital in excess of par value

Preferred 24,000

Common 4,620,0003,600,000

Retained earnings 8,470,0006,920,000

Total stockholders’ equity $16,064,000 $12,570,000

a.Compute the number of preferred shares that were issued during 20X8.

b.Calculate the average issue price of the common stock sold in 20X8.

c.By what amount did the company’s paid-in capital increase during 20X8

d.Did Star’s total legal capital increase or decrease during 20X8? By what amount

2. Bond computations: Straight-line amortization

Northern Corporation issued $800,000 of 7% bonds on March 1, 20X8. 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 ACase BCase C

a. Cash inflow on the issuance date_____________________

b.Total cash outflow through maturity_____________________

c.Total borrowing cost over the life of the bond issue _____________________

d.Interest expense for the year ended December 31, 20X8 _____________________

e.Amortization for the year ended December 31, 20X8 _____________________

f.Unamortized premium as of December 31, 20X8 _____________________

g.Unamortized discount as of December 31, 20X8 _____________________

h.Bond carrying value as of December 31, 20X8 _____________________

3. Definitions of manufacturing concepts

J & B Manufacturing produces brass fasteners and incurred the following costs for the year just ended:

Materials and supplies used

Brass$80,000

Repair parts18,000

Machine lubricants 8,000

Wages and salaries Machine operators 140,000

Production supervisors 62,000

Maintenance personnel 39,000

Other factory overhead Variable 29,000

Fixed 48,000

Sales commissions20,000

Compute:

a.Total direct materials consumed

b.Total direct labor

c.Total prime cost

d.Total conversion cost

4. Schedule of cost of goods manufactured, income statement

The following information was taken from the ledger of Jakob Industries, Inc.:

Direct labor$75,000 Administrative expenses$63,000

Selling expenses36,000Work in. process

Sales310,000Jan. 132,000

Finished goodsDec. 3121,000

Jan. 1115,000Direct material purchases87,000

Dec. 31131,000Depreciation: factory21,000

Raw (direct) materials on handIndirect materials used11,000

Jan. 131,000Indirect labor26,000

Dec. 3140,000Factory taxes8,000

Factory utilities12,000

Prepare the following:

a.A schedule of cost of goods manufactured for the year ended December 31.

b.An income statement for the year ended December 31.

5. Manufacturing statements and cost behavior

Sioux 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 $38 per roll. Cost information for the year just ended follows.

Per Unit Variable Cost Fixed Cost

Direct materials $4.00 $

Direct labor 7.0

Factory overhead 9.070,000

Selling 80,000

Administrative 135,000

Production and sales totaled 20,000 rolls and 18,000 rolls, respectively There is no work in process. Sioux carries its finished goods inventory at the average unit cost of production.

Instructions:

a.Determine the cost of the finished goods inventory of light-gauge aluminum.

b.Prepare an income statement for the current year ended December 31

c.On the basis of the information presented:

1. Does it appear that the company pays commissions to its sales staff? Explain.

2. What is the likely effect on the $4.00 unit cost of direct materials if next year’s production increases? Why?