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,
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 ( 15 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.
Hint (recall the 3 sections)
Question 4 (10 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.)
Hint (think premiums and discounts)
Question 5 (10 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.
Hint: think differences between accepting the order or not.
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.
Hint:Set up 2 columns and showdifferences in income and costs for each column
| Name: |
Question 1: 30% points
a. General Journal Entries:
| Date | Account | Debit | Credit |
Answer.Sheet.Page.1.of.6.Sp.15 Final-Exam
b. Partial Classified Balance Sheet:
| Rayco Corporation | ||
| Balance Sheet (partial) | ||
| December 31, 2014 | ||
Question 2: 5% points
- General Journal Entries:
January 1 and December 31 general journal entries for XYZ Company.
| Date | Account | Debit | Credit |
| January 1 | Investment in Rayco account | $90,000 | |
| Cash account | $90,000 | ||
| December 31 | 1. Cash account Debited | $3,000 | |
| Investment in Rayco account | $3,000 | ||
b. Stock Investments Accounts Balance 12/31/14:
XYZ co, should be report on the balance sheet for the investment in Rayco at the end of 2014 is
= $90,000 – $3,000 = $87,000
Because cash dividend is treated as return on capital so co. should reduced total investment by cash dividend.
Answer.Sheet.Page.2.of.6.Sp.15 Final-Exam
Question 3: 15% points:
| Rayco Corporation | ||
| Statement of Cash Flows | ||
| For the Year Ended December 31, 2014 | ||
Answer.Sheet.Page.3.of.6.Sp.15 Final-Exam
Question 4: 10% points:
| Date | Account | Debit | Credit |
Answer.Sheet.Page.4.of.6.Sp.15 Final-Exam
Question 5: 10% points:
| a.1. | Breakeven Sales Dollars | |
| a.2. | Breakeven Units | |
| b.1. | Breakeven Sales Dollars | |
| b.2. | Breakeven Units | |
| c. | Operating Income | |
Question 6: 5% points:
| Rayco Enterprises | |
| Incremental Analysis | |
| Special Order | |
| Sales | 375,000 |
| Variable manufacturing cost | |
| Variable selling expenses | |
| Contribution margin | 375,000 |
| Manufacturing fixed costs | |
| Fixed selling costs | |
| Operating income | 375,000 |
Question 7: 5% points:
| Rayco Inc. | ||
| Incremental Analysis | ||
| To Produce or Buy | ||
| Produce | Buy | |
| Purchase wheel sets | 0 | 180,000 |
| Direct labor | 20,000 | 0 |
| Direct material | 55,000 | 0 |
| Variable manufacturing OH | 45,000 | 0 |
| Variable costs | 120,000 | 180,000 |
| Manufacturing fixed costs | 70,000 | 30,000 |
| Rental income | 0 | -15,000 |
| Total costs | 190,000 | 195,000 |
Answer.Sheet.Page.5.of.6.Sp.15 Final-Exam
Multiple choice questions allocated 1% point each: Make your selection by indicating the letter corresponding to your answer. Please use Capital Letters.
| Question Number | Answer | Question Number | Answer |
| 8: | B | 18: | B |
| 9: | C | 19: | A |
| 10: | D | 20: | B |
| 11: | D | 21: | E |
| 12: | D | 22: | D |
| 13: | C | 23: | C |
| 14: | E | 24: | C |
| 15: | B | 25: | E |
| 16: | C | 26: | E |
| 17: | C | 27: | E |
Answer.Sheet.Page.6.of.6.Sp.15
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