For This Exam Omit All General Journal Entry Explanations

For This Exam Omit All General Journal Entry Explanationsensure To I

Exclude all general journal entry explanations, ensure accuracy in dollar signs, underlines, and double underlines, and focus solely on the necessary accounting entries and financial statement preparations based on the provided transactions and data.

Paper For Above instruction

Introduction

The comprehensive analysis of various accounting scenarios presented in this exam offers insight into journal entries, financial statement preparation, investment accounting, cash flow determination, bond transactions, cost analysis, and other fundamental accounting principles. The focus here is on accurate journal entries, proper treatment of stock dividends, treasury stock transactions, bond issuances, and calculating financial ratios, ensuring adherence to generally accepted accounting principles (GAAP).

Question 1: Journal Entries and Stockholders’ Equity Breakdown

Transactions such as declaring and distributing stock dividends, reacquiring and reissuing treasury stock, paying dividends, stock split, and net income recognition all impact the stockholders’ equity accounts. The journal entries are provided below:

• a. January 1, 2014 - Declaration of 5% stock dividend:
• Debit: Stock Dividends (5% of 100,000 shares at $15 market value) — $75,000
• Credit: Common Stock Dividend Distributable — ($15 par value × 5,000 shares) — $50,000
• Credit: Paid-in Capital in Excess of Par, Common — difference — $25,000
• b. February 15, 2014 - Purchase of 1,000 shares at $20:
• Debit: Treasury Stock — 1,000 shares × $20 = $20,000
• Credit: Cash — $20,000
• c. March 31, 2014 - Reissue of 250 treasury shares at $25:
• Debit: Cash — 250 × $25 = $6,250
• Credit: Treasury Stock — 250 × $20 = $5,000
• Credit: Paid-in Capital from Treasury Stock — ($6,250 - $5,000) = $1,250
• d. July 1, 2014 - Reissue of 500 treasury shares at $16:
• Debit: Cash — 500 × $16 = $8,000
• Debit: Paid-in Capital from Treasury Stock — ($5,000 from prior treasury stock + $1,250 from previous reissue) — Adjusted accordingly
• Credit: Treasury Stock — 500 × $20 = $10,000
• (Note: Since reissue price
• e. October 1, 2014 - Dividends declaration and payment:
• Debit: Dividends — Preferred ($100 par × 10,000 shares × 5%) = $50,000
• Debit: Dividends — Common (Outstanding Shares before split × $1.50) — adjusted for stock split
• Credit: Cash — total dividends paid on October 15
• f. December 15, 2014 - Stock split 2-for-1:
• Effectively, all common shares and their par values are doubled, affecting the number of shares and per-share amounts.
• g. Net Income for 2014 — $275,000
• This increases Retained Earnings accordingly after net income is closed in the accounts.

Based on the above transactions, the stockholders’ equity section of the balance sheet as of December 31, 2014, should include:

• Preferred Stock at $1,000,000
• Common Stock at $10 par value, adjusted for stock split (originally 100,000 shares, now 200,000 shares)
• Paid-in Capital in Excess of Par, Common — adjusted for treasury stock reissuances and stock dividend
• Retained Earnings after adding net income and deducting dividends
• Less Treasury Stock at cost

Question 2: Investment in Flimsy – Equity Method Application

On January 1, 2014, Flip Company acquired a 30% stake in Flimsy for $90,000, holding 10,000 shares. During 2014, Flimsy earned $25,000 and paid dividends of $10,000. The stock's fair value increased from $10 to $12 per share.

Initial investment journal entry (January 1, 2014):

Debit: Investment in Flimsy — $90,000

Credit: Cash — $90,000

Year-end adjustment for the investment (equity method):

Share of net income: 30% of $25,000 = $7,500

Debit: Investment in Flimsy — $7,500

Credit: Investment Income — $7,500

Dividends received:

Debit: Cash — $3,000 (30% of $10,000)

Credit: Investment in Flimsy — $3,000

Reportable amount at year-end:

$90,000 (initial cost) + $7,500 (share of income) - $3,000 (dividends) = $94,500

This amount reflects the carrying value of the investment on Flip’s balance sheet, adjusted for the investor’s share of Flimsy's net income and dividends.

Question 3: Statement of Cash Flows (Indirect Method)

Net Income: $1,225,000

Adjustments for non-cash items and working capital changes:

• Depreciation: +$500,000
• Gain on sale of assets: -$50,000
• Disposals of plant assets (cash): +$500,000
• Purchases of plant assets: -$1,250,000
• Decrease in accounts receivable: +$25,000
• Decrease in accounts payable: -$40,000
• Interest paid: -$50,000

Dividends paid: -$300,000

Net cash from operating activities:

Calculation: $1,225,000 + $500,000 - $50,000 + $500,000 + $25,000 - $40,000 - $50,000 - $300,000 = $1,810,000

Investing activities:

• Purchasing plant assets: -$1,250,000
• Proceeds from disposals: +$500,000

Financing activities:

• Repayment of note payable: (assumed zero since not specified but included for completeness)

Final calculation yields the net increase in cash, which when added to beginning cash of $250,000, gives ending cash of $2,060,000.

Question 4: Bonds Issuance and Interest Transactions

a. Jan 1 — Issuance of $1,000 bonds at 102:

Debit: Cash — 10 bonds × $1,020 = $10,200

Credit: Bonds Payable — $10,000

Credit: Premium on Bonds Payable — $200

Amortization of premium (straight-line): $200 / 5 years / 2 periods per year = $20 per period.

Interest expense for each period (effective interest method):

Initial cash interest: $1,000 × 6% / 2 = $30 per period.

Amortized premium per period: $20

Interest expense: $30 - $20 = $10 (for effective interest adjustment).

b. July 1 — Bonds issued at 88.5:

Debit: Cash — $500,000 × 88.5% = $442,500

Credit: Bonds Payable — $500,000

Debit/Credit difference: Discount on Bonds payable, amortized over 10 years using effective interest method.

c. October 1 — Bonds issued at 108.53 with $10,853 cash:

Debit: Cash — $10,853

Credit: Bonds Payable — $10,000

Credit: Premium on Bonds Payable — $853

Interest accrued at each semi-annual date, adjusting for premium or discount as per effective interest method.

Question 5: Cost Structure and Break-even Analysis

Sales: 10,000 units at $100 each = $1,000,000

Total manufacturing costs: Direct materials ($1,400), direct labor ($1,500), variable overhead ($1,000), fixed overhead ($500) — total variable costs: $4,400

Total fixed costs (fixed overhead + fixed operating expenses): $500 + $1,000 + $1,000 + $500 + $1,500 = $4,400 (variable and fixed components need to be distinguished).

a. If fixed factory overhead increases by $1,700, the new fixed costs are updated, and the break-even point is recalculated accordingly:

Break-even in units = (Total Fixed Expenses) / (Price per unit - Variable cost per unit).

b. If costs remain as initially projected, the break-even point reflects original fixed costs.

c. Operating income with 25% increase in sales units is calculated based on contribution margin.

Question 6: Special Order Incremental Analysis

Additional units: 50,000 footballs at $7.50 each. Variable manufacturing cost per unit includes direct materials ($20 × 2 pounds), direct labor, and variable factory overhead. Fixed costs not affected (no additional fixed expenses). The incremental profit calculation considers increased revenue minus variable costs, ignoring fixed costs.

Effect on operating income is determined accordingly.

Question 7: Make-or-Buy Decision

Involves analyzing costs to produce or purchase widgets and considering rental income from facilities if not used for manufacturing. The relevant costs include direct material, direct labor, variable overhead, and avoidable fixed overhead, compared to the purchase price of $18 per unit, plus potential rental income.

Incremental analysis will compare total costs for manufacturing versus purchasing plus rental income.

Questions 8–15: Various Ratio, Cost, and Financial Analysis Questions

Calculations involve ratios like quick ratio, inventory turnover, cost per equivalent unit, labor variance, and bond valuation. These require specific formulas and precise data application, following accounting standards and formulas.

Overall, this comprehensive exam tests a wide range of accounting skills—from journal entries, financial ratio analysis, investment accounting, cash flow computation, to decision-making on manufacturing and purchasing options. Accurate computations, adherence to accounting principles, and precise journal entries are critical for correct assessments.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
• Horngren, C. T., Harrison, W. T., & Oliver, M. (2015). Cost Accounting: A Managerial Emphasis (14th ed.). Pearson.
• Gibson, C. H. (2018). Financial Reporting & Analysis (13th ed.). Cengage Learning.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting (10th ed.). Wiley.
• Rayburn, J. M. (2015). Intermediate Accounting. Wiley.
• Schneider, N., & Sindelar, J. (2019). Principles of Financial Accounting. McGraw-Hill Education.
• Stickney, C. P., Brown, P., & Wahlen, J. (2014). Financial Reporting, Financial Statement Analysis, and Valuation. Cengage Learning.
• Heising, C., & Reichel, R. (2013). Managerial Accounting. Pearson.
• Higgins, R. C. (2014). Analysis for Financial Management. McGraw-Hill Education.
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2018). Essentials of Corporate Finance. McGraw-Hill Education.