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Omit all general journal entry explanations.

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Question 1 (15 points) Statement of Cash Flows

The following is selected information from Murphy Company for the fiscal years ended December 31, 2015: Murphy Company had

·       Net income of $500,000.

·       Depreciation was $50,000,

·       Purchases of plant assets were $ 250,000, and

·       Disposals of plant assets for $500,000 resulted in a $20,000 gain.

·       Stock was issued in exchange for an outstanding note payable of $925,000.

·       Accounts receivable decreased by $25,000.

·       Accounts payable decreased by $10,000.

·       Dividends of $200,000 were paid to shareholders.

·       Murphy Company had interest expense of $5,000.

·       Cash balance on January 1, 2015 was $250,000.

Requirements: Prepare Murphy Company's statement of cash flows for the year ended December 31, 2015 using the indirect method.

Question 2 (10 points)

On January 1, 2015, Baker Company purchased 10,000 shares of the stock of Murphy, and did obtain significant influence.

The investment is intended as a long-term investment.

The stock was purchased for $70,000, and represents a 25% ownership stake.

Murphy made $20,000 of net income in 2015, and paid dividends of $10,000.

The price of Murphy's stock increased from $20 per share at the beginning of the year, to $22 per share at the end of the year.

Requirements:

a.     Prepare the January 1 and December 31 general journal entries for Baker Company.

b.     How much should the Baker Company report on the balance sheet for the investment in Murphy at the end of 2015?

Question 3 (20 Points)

On December 31, 2016, Murphy Inc. had the following balances (all balances are normal):

The following events occurred during 2016 and were not recorded:

a.      On January 1, Murphy 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, Murphy reacquired 1,000 shares of common stock for $20 each.

c.      On March 31, Murphy reissued 250 shares of treasury stock for $25 each.

d.      On July 1, Murphy reissued 500 shares of treasury stock for $16 each.

e.      On October 1, Murphy 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, Murphy split common stock 2 shares for 1.

g.      Net Income for 2016 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, 2016.

Question 4 (14 points)

4A. January 1, 2016, Brandon Company issued $100,000 of 5 year 9% bonds when the market rate of interest was 10%.  Brandon received $96,149 for the bond issue. The bonds pay interest on July 1 and January 1.

4B. January 1,2016  ABC Company issues $100,000 of 5 year  9% bonds to yield $104,100 when the market  rate of interest is  8%.The bonds pay interest on July 1 and January 1.

.     

Requirements:Prepare all general journal entries for the 2 bonds issued and any interest accruals and payments for the fiscal year 2016.  What is the carrying amount on the December 31, 2016 Balance Sheet for 4A. and 4B?

Question 5 (10 Points)

John Webb recently graduated from mortuary school. He is considering opening his own funeral home. A funeral home is a high-fixed cost business, as it requires considerable expenditures for facilities, labor, and equipment, no matter how many families are served.

Assume the annual fixed cost of operations is $800,000. Further assume that the only significant variable cost relates to burial containers like urns and caskets. An average casket costs $1,200. John’s banker has asked a variety of questions in contemplation of providing a loan for this business.

Required: Provide the solution to each of the following question

(a)  If the average family is charged $6,000 for services and a burial container, how many families must be served to clear the break-even point?

(b)If the banker believes John will only serve 100 families during the first year in business, how much will the business lose during its first year of operation?

(c)  If John believes his profits will be at least $100,000 during the first year, how much is he anticipating for total revenue?

(d)The banker has suggested that John can reduce his fixed costs by $150,000 if he will not buy any vehicles. John can instead rent vehicles as needed. The variable cost of renting is $700 per family served. Will this suggestion help John reach the break-even point sooner?

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

·       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.

·       Murphy 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.              Hint: think differences between accepting the order or not.

Question 7 (6 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;

·       Fixed overhead is $70,000.

Murphy 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 Murphy's offer.        Hint:Set up 2 columns and showdifferences in income and costs for each column.