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Chapter 2 Exercise 3 1. Analysis of stockholders' equity Star Corporation issued both common and preferred stock during 20X6. The stockholders' equity sections of the

Chapter 2 Exercise 3

1. Analysis of stockholders' equity

Star Corporation issued both common and preferred stock during 20X6. The stockholders' equity sections of the company's balance sheets at the end of 20X6 and 20X5 follow:

20X6 20X5

Preferred stock, $100 par value, 10% $580,000 $500,000

Common stock, $10 par value 2,350,000 1,750,000

Paid-in capital in excess of par value

Preferred 24,000 %u2014

Common 4,620,000 3,600,000

Retained earnings 8,470,000 6,920,000

Total stockholders' equity $16,044,000 $12,770,000

a. Compute the number of preferred shares that were issued during 20X6.

b. Calculate the average issue price of the common stock sold in 20X6.

c. By what amount did the company's paid-in capital increase during 20X6?

d. Did Star's total legal capital increase or decrease during 20X6? By what amount?

Chapter 2 Problem 1

2. Bond computations: Straight-line amortization

Southlake Corporation issued $900,000 of 8% bonds on March 1, 20X1. The bonds pay interest on March 1 and September 1 and mature in 10 years. Assume the independent cases that follow.

%u2022 Case A%u2014The bonds are issued at 100.

%u2022 Case B%u2014The bonds are issued at 96.

%u2022 Case C%u2014The bonds are issued at 105.

Southlake uses the straight-line method of amortization.

Instructions:

Complete the following table:

Case A Case B Case C

a. Cash inflow on the issuance date _______ _______ _______

b. Total cash outflow through maturity _______ _______ _______

c. Total borrowing cost over the life of the bond issue _______ _______ _______

d. Interest expense for the year ended December 31, 20X1 _______ _______ _______

e. Amortization for the year ended December 31, 20X1 _______ _______ _______

f. Unamortized premium as of December 31, 20X1 _______ _______ _______

g. Unamortized discount as of December 31, 20X1 _______ _______ _______

h. Bond carrying value as of December 31, 20X1 _______ _______ _______

Chapter 3 Exercise 2

3. Definitions of manufacturing concepts

Interstate Manufacturing produces brass fasteners and incurred the following costs for the year just ended:

Materials and supplies used

Brass $75,000

Repair parts 16,000

Machine lubricants 9,000

Wages and salaries Machine operators 128,000

Production supervisors 64,000

Maintenance personnel 41,000

Other factory overhead Variable 35,000

Fixed 46,000

Sales commissions 20,000

Compute:

a. Total direct materials consumed

b. Total direct labor

c. Total prime cost

d. Total conversion cost

Chapter 3 Exercise 5

4. Schedule of cost of goods manufactured, income statement

The following information was taken from the ledger of Jefferson Industries, Inc.:

Direct labor $85,000 Administrative expenses $59,000

Selling expenses 34,000 Work in. process:

Sales 300,000 Jan. 1 29,000

Finished goods Dec. 31 21,000

Jan. 1 115,000 Direct material purchases 88,000

Dec. 31 131,000 Depreciation: factory 18,000

Raw (direct) materials on hand Indirect materials used 10,000

Jan. 1 31,000 Indirect labor 24,000

Dec. 31 40,000 Factory taxes 8,000

Factory utilities 11,000

Prepare the following:

a. A schedule of cost of goods manufactured for the year ended December 31.

b. An income statement for the year ended December 31.

Chapter 3 Problem 3

5. Manufacturing statements and cost behavior

Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.

Per Unit Variable Cost Fixed Cost

Direct materials $4.50 $ %u2014

Direct labor 6.5 %u2014

Factory overhead 9 50,000

Selling %u2014 70,000

Administrative %u2014 135,000

Production and sales totaled 20,000 rolls and 17,000 rolls, respectively There is no work in process. Tampa carries its finished goods inventory at the average unit cost of production.

Instructions:

a. Determine the cost of the finished goods inventory of light-gauge aluminum.

b. Prepare an income statement for the current year ended December 31

c. On the basis of the information presented:

1. Does it appear that the company pays commissions to its sales staff? Explain.

2. What is the likely effect on the $4.50 unit cost of direct materials if next year's production increases? Why?

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