On December 31, 2014, Rayco Inc. had the following balances (all balances are normal): Accounts

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:

1. 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.
2. On February 15, Rayco reacquired 1,000 shares of common stock for $20 each.
3. On March 31, Rayco reissued 250 shares of treasury stock for $25 each.
4. On July 1, Rayco reissued 500 shares of treasury stock for $16 each.
5. 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.
6. On December 15, Rayco split common stock 2 shares for 1.
7. Net Income for 2014 was $275,000.

Requirements:

1. Prepare journal entries for the transactions listed above.
2. Prepare a Stockholders’ section of a classified balance sheet as of December 31, 2014.

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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:

1. Prepare the January 1 and December 31 general journal entries for XYZ Company.
2. How much should the XYZ Company report on the balance sheet for the investment in Rayco at the end of 2014?

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Question 3 (10 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.

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Question 4 (15 points)

Rayco Corporation had the following bond transactions during the fiscal year 2014:

1. 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.

1. 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.

1. 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.)

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Question 5 (5 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:

1. What is the break-even point in sales dollars and in units if the fixed factory overhead increased by $1,700?
2. What is the break-even point in sales dollars and in units if costs remain as originally projected?
3. What would be the operating income if sales units increased by 25%?

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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.

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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.

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Section 2: Multiple Choice Questions (20 points)

Question 8 (1 point)

Train Company had no beginning inventory and adds all materials at the very beginning of its only process. Assume 100,000 units were started, and 80% complete at month’s end. Total costs were $24,000 for material and $16,000 for conversion. The cost per equivalent unit of conversion is _____________.

Question 8 options:

a) 

$0.16

b) 

$0.20

c) 

$0.36

d) 

$0.40

e) 

none of these

Question 9 (1 point)

Train Company had no beginning inventory and adds all materials at the very beginning of its only process. Assume 10,000 units were started, and 5,000 units completed. Ending work in process is 60% complete. The cost per equivalent unit of conversion is __________.

Question 9 options:

a) 

$1.00 if total conversion cost is $3,000

b) 

$1.00 if total conversion cost is $5,000

c) 

$1.00 if total conversion cost is $8,000

d) 

$1.00 if total conversion cost is $10,000

e) 

none of these

Question 10 (1 point)

Train Company makes units, and each unit requires 2 pounds of material at $3 per pound. 500 and 700 units will be built in May and June, respectively. Train keeps material on hand at 20% of the next month’s production needs. How much is the material cost for May’s output?

Question 10 options:

a) 

$2,400

b) 

$3,000

c) 

$3,240

d) 

$4,200

e) 

none of these

Question 11 (1 point)

Anticipated unit sales for January are 5,000; sales for February are 4,000; and sales for March are 8,000. Finished goods are consistently maintained at 80% of the following month’s sales. If units cost $10 each to produce, how much is February’s total cost of production?

Question 11 options:

a) 

$0

b) 

$40,000

c) 

$72,000

d) 

$80,000

e) 

none of these

Question 12 (1 point)

Total production of 1,000 units of finished goods required 3,900 actual hours at $12 per hour. The standard is 4 hours per unit of finished goods, at a standard rate of $11 per hour. Which of the following statements is true?

Question 12 options:

a) 

The labor rate variance is $3,900 favorable.

b) 

The labor rate variance is $4,000 unfavorable.

c) 

The labor efficiency variance is $1,100 favorable.

d) 

The labor efficiency variance is $1,100 unfavorable.

e) 

none of these

Question 13 (1 point)

If beginning work in process was 600 units, 1,400 additional units were put into production, and ending work in process was 500 units, how many units were completed?

Question 13 options:

a) 

500

b) 

900

c) 

1,400

d) 

2,000

e) 

none of these

Question 14 (1 point)

Train Company had no beginning inventory and adds all materials at the very beginning of its only process. Assume 10,000 units were started, and 5,000 units completed. Ending work in process is 60% complete. The cost per equivalent unit of material is __________.

Question 14 options:

a) 

$1.00 if total material cost is $3,000

b) 

$1.00 if total material cost is $5,000

c) 

$1.00 if total material cost is $8,000

d) 

$1.00 if total material cost is $10,000

e) 

none of these

Question 15 (1 point)

Assume that actual overhead consisted of $30,000 for indirect labor, $20,000 for indirect material, and $10,000 for depreciation of factory equipment. Based on the preset rates, $65,000 of overhead was applied to work in process. Which of the following statements is true?

Question 15 options:

a) 

overhead is underapplied

b) 

this is viewed as an unfavorable situation

c) 

there will be a $5,000 debit balance in Factory Overhead

d) 

all of the above

e) 

none of these

Question 16 (1 point)

The contract interest rate for bonds ___________.

Question 16 options:

a) 

must equal the effective interest rate

b) 

is greater than the effective interest rate when bonds are issued at a premium

c) 

has no relation to the cash flow associated with a particular bond

d) 

will fluctuate over the life of a bond

e) 

none of these

Question 17 (1 point)

Train Corporation issued $100,000 of 7%, 15-year bonds on April 1, 2014, at 101. Interest is paid on April 1 and October 1. The proper entry to record issuance of the bonds includes a debit to Cash for ____________.

Question 17 options:

a) 

$100,000

b) 

$101,000

c) 

$101,167

d) 

$102,167

e) 

$107,000

Question 18 (1 point)

Which of the following statements about treasury stock is true?

Question 18 options:

a) 

Excess of the sales price over cost should be credited to retained earnings.

b) 

Gains are not recorded on treasury stock transactions but losses are.

c) 

Losses on treasury stock transactions are recorded in income.

d) 

Purchasing treasury stock causes stockholders equity to decrease.

e) 

Purchasing treasury stock requires a debit to the common stock account.

Question 19 (1 point)

Train Company has 100,000 shares of common stock outstanding. On April 15, the board declared a $.30 dividend to be paid to stockholders of record on May 4. The dividend was distributed on May 15. The proper journal entry for Train Company on May 15 does not include ____________.

Question 19 options:

a) 

a credit to Dividends Payable for $30,000

b) 

a debit to Dividends for $30,000

c) 

a credit to Cash for $30,000

d) 

both a credit to Dividends Payable for $30,000 and a debit to Dividends for $30,000

e) 

none of these

Question 20 (1 point)

In an effort to concentrate its resources in more profitable areas, Train Corporation recently sold its family cookbook segment but retained its restaurant segment. The disposal constitutes ____________.

Question 20 options:

a) 

an extraordinary item

b) 

a discontinued operation, which should be treated as a prior period adjustment

c) 

a discontinued operation, which should be disclosed net-of-tax effects

d) 

a portion of income from continuing operations

e) 

an item which does not require disclosure

Question 21 (1 point)

Train Corporation has 100,000, 5%, $100 par preferred shares outstanding. The preferred stock was originally issued at 102. The current dividend has been fully paid. Total stockholders’ stock equity is $20,000,000. The common stock equity is ___________.

Question 21 options:

a) 

$20,000,000

b) 

$10,100,000

c) 

$10,000,000

d) 

$9,800,000

e) 

none of these

Question 22 (1 point)

Train Company’s balance sheet included cash ($4,000,000), accounts receivable ($16,000,000), inventories ($10,000,000), prepaid expenses ($2,000,000), accounts payable ($9,000,000), and accrued expenses ($7,000,000). Working capital is ___________.

Question 22 options:

a) 

$16,000,000

b) 

$4,000,0000

c) 

$20,000,000

d) 

$7,000,000

e) 

none of these

Question 23 (1 point)

Selected information for 2014 is: cost of goods sold, $5,400,000; average inventory, $1,800,000; net sales, $7,200,000; average receivables, $960,000; and net income, $720,000. Assuming a 360-day year, what was the inventory turnover ratio for 2014?

Question 23 options:

a) 

333

b) 

3

c) 

7.5

d) 

20

e) 

none of these

Question 24 (1 point)

On the schedule of cost of goods manufactured:

Question 24 options:

a) 

beginning work-in-process plus direct materials used equals manufacturing costs

b) 

cost of goods manufactured equals value of goods transferred to finished goods

c) 

work-in-process will necessarily increase if total manufacturing costs increase

d) 

factory overhead plus beginning work-in-process equals manufacturing costs

e) 

none of these

Question 25 (1 point)

Which costing method seems ideally suited to the production of homogenous products in continuous throughput?

Question 25 options:

a) 

activity-based costing

b) 

job order costing

c) 

process costing

d) 

absorption costing

e) 

none of these

Question 26 (1 point)

Train Company uses a job order cost system and applies overhead based on estimated rates for work in their factory. The overhead application rate is based on total estimated overhead costs of $200,000 and direct labor hours of 50,000. For job 836, direct labor hours were 800 for the month of December. What is the appropriate journal entry for job 836 for the month of December?

Question 26 options:

a) 

Factory Overhead should be debited for $3,200.

b) 

Factory Overhead should be credited for $3,200.

c) 

Job Overhead Expense should be debited for $200.

d) 

Job Overhead Expense should be credited for $200.

e) 

none of these

Question 27 (1 point)

For job 1838, there were 1,000 direct labor hours, and actual overhead was $500 for depreciation and $1,400 for indirect labor. Overhead is applied at $2 per direct labor hour. Which account should be debited for $1,900?

Question 27 options:

a) 

Work in Process

b) 

Cost of Goods Sold

c) 

Factory Overhead

d) 

Cost of Goods Manufactured

e) 

none of these