10 accounting questions

#1 Barnes Company is considering two alternatives to finance its purchase of a new $4,000,000 office building.

(a)   Issue 400,000 shares of common stock at $10 per share.

(b)   Issue 7%, 10-year bonds at par ($4,000,000).

Income before interest and taxes is expected to be $3,500,000. The company has a 30% tax rate and has 600,000 shares of common stock outstanding prior to the new financing.

Instructions

Calculate each of the following for each alternative:

(1)   Net income.

(2)   Earnings per share.

#2 Smith Company has budgeted the following unit sales:

                           2015                                      Units

                        January                                 10,000

                        February                                  8,000

                        March                                       9,000

                        April                                        11,000

                        May                                        15,000

The finished goods units on hand on December 31, 2014, was 1,000 units. Each unit requires 2 pounds of raw materials that are estimated to cost an average of $3 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 10% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 20% of the pounds needed for the following month's production. There were 3,920 pounds of raw materials on hand at December 31, 2014.

Instructions

For the first quarter of 2015, prepare:

 (1) a production budget

 (2) a direct materials budget.

#3 Fisanich Company purchased 35,000 shares of common stock of Pear Corporation as a long-term investment for $700,000. During the year, Pear Corporation reported net income of $300,000 and paid dividends of $100,000.

Instructions

(a)    Assuming that the 35,000 shares represent a 10% interest in Pear Corporation:

         1.   Prepare the journal entry to record the investment in Pear Corporation stock.

         2.   Prepare any entries that Fisanich Company should make in accounting for its investment in Pear Corporation stock during the year.

         3.   What is the balance of the Stock Investments account on Fisanich Company's books at the end of the year?

(b)    Repeat requirements (a) 1. 2. and 3. above except assume that the 35,000 shares represent a 20% interest in Pear Corporation.

#4 Adelphonse Corporation issued $2 million, 10-year, 6% bonds on January 1, 2014.

Instructions

Prepare the entry to record the sale of these bonds, assuming they were issued at:

(a)   98.

(b)   103.

.

#5Roland Corporation entered into the following transactions:

1.   On January 1, 2014 Pear Car Rental leased a car to Roland Corporation for one year. Terms of the operating lease call for monthly payments of $650.

2.   On January 1, 2014, Roland Corporation entered into an agreement to lease 20 machines from Pear Corporation. The terms of the lease agreement require an initial payment of $500,000 and then three annual rental payments of $600,000 beginning on December 31, 2014. The present value of the three rental payments is $1,492,108. The lease is a capital lease.

Instructions

Prepare the appropriate journal entries to be made by Roland Corporation in January related to the lease transactions.

#6Pear Corporation is issuing $600,000 of 8%, 5-year bonds when potential bond investors want a return of 10%. Interest is payable semiannually.

The present value of 1 factors are 4%, .67556 and 5%, .61391. The present value of an annuity factors are 4%, 8.1109 and 5%, 7.72173.

Instructions

Compute the market price (present value) of the bonds.

#7Washington Company produced and sold 50,000 units of product and is operating at 80% of plant capacity. Unit information about its product is as follows:

         Sales Price                                                                                                $68

         Variable manufacturing cost                                          $42

         Fixed manufacturing cost ($600,000 ÷ 50,000)            12                    54

         Profit per unit                                                                                            $14

The company received a proposal from Pear Company to buy 10,000 units of Washington Company's product for $49 per unit. This is a one-time only order and acceptance of this proposal will not affect the company's regular sales. The president of Washington Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order.

Instructions

Prepare a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of this order might have on the company's income.

#8A comparative balance sheet for Richardson-Lau Corporation is presented below:

RICHARDSON-LAU CORPORATION

Comparative Balance Sheet

                                                                                                             2014                         2013    

Assets

Cash                                                                                              $  36,000                $  31,000

Accounts receivable (net)                                                              70,000                    60,000

Prepaid insurance                                                                           25,000                    17,000

Land                                                                                                                                   18,000    40,000

Equipment                                                                                        70,000                    60,000

Accumulated depreciation                                                            (20,000)                  (13,000)

         Total Assets                                                                         $199,000                $195,000

Liabilities and Stockholders' Equity

Accounts payable                                                                       $  11,000                 $   6,000

Bonds payable                                                                                 27,000                    19,000

Common stock                                                                               140,000                  115,000

Retained earnings                                                                          21,000                    55,000

         Total liabilities and stockholders' equity                        $199,000                $195,000

Additional information:

1.   Net loss for 2014 is $20,000.

2.   Cash dividends of $14,000 were declared and paid in 2014.

3.   Land was sold for cash at a loss of $4,000. This was the only land transaction during the year.

4.   Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash.

5.   $22,000 of bonds were retired during the year at carrying (book) value.

6.   Equipment was acquired for common stock. The fair value of the stock at the time of the exchange was $25,000.

Instructions

Prepare a statement of cash flows for the year ended 2014, using the indirect method.

#9The current sections of May Inc.'s balance sheets at December 31, 2013 and 2014, are presented here.

May's net income for 2014 was $203,000. Depreciation expense was $25,000.

                                                                                                               2014                          2013  

                        Current assets

                             Cash                                                                     $115,000                    $99,000

                             Accounts receivable                                            105,000                      89,000

                             Inventory                                                                154,000                   172,000

                             Prepaid expense                                                    27,000                      21,000

                                    Total current assets                                    $401,000                  $381,000

                         Current liabilities

                             Accrued expenses payable                              $  15,000                    $  5,000

                             Accounts payable                                                   85,000                      93,000

                                    Total current liabilities                                $100,000                   $ 98,000

Instructions

Prepare the net cash provided by operating activities section (ONLY!) of the company's statement of cash flows for the year ended December 31, 2014, using the indirect method.

#10On June 30, 2014, Robertson, Inc. sold $3,000,000 (face value) of bonds. The bonds are dated June 30, 2014, pay interest semiannually on December 31 and June 30, and will mature on June 30, 2017. The following schedule was prepared by the accountant for Robertson, Inc for 2014.

 Semi-Annual       Interest to          Interest                                Unamortized          Bond

Interest Period        be Paid          Expense     Amortization        Amount        CarryingValue

                                                                                                           $75,000         $2,936,625

         1                 $120,000         $131,625           $11,625             63,375           1,936,625

Instructions

On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)

1.   What is the stated interest rate for this bond issue?

2.   What is the market interest rate for this bond issue?

3.   What was the selling price of the bonds as a percentage of the face value?

4.   Prepare the journal entry to record the sale of the bond issue on June 30, 2014.

5.   Prepare the journal entry to record the payment of interest and amortization on December 31, 2014.

Merry Christmas!!