Question 1: 30% points:
On December 31, 2014, Frick Incorporated, had the following balances (all balances are normal):
Preferred Stock, ($100 par value, 5% noncumulative, 50,000 shares authorized, 10,000 shares issued and outstanding)
Common Stock ($10 par value, 200,000 shares authorized, 100,000 shares issued and outstanding)
Paid-in Capital in Excess of par, Common
The following events occurred during 2014 and were not recorded:
a. On January 1, Frick 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, Frick reacquired 1,000 shares of common stock for $20 each.
c. On March 31, Frick reissued 250 shares of treasury stock for $25 each.
d. On July 1, Frick reissued 500 shares of treasury stock for $16 each.
e. On October 1, Frick declared full year dividends for preferred stock and $1.50 cash dividends for outstanding shares and paid shareholders on October 15.
f. One December 15, Frick split common stock 2 shares for 1.
g. Net Income for 2014 was $275,000.
a. Prepare journal entries for the transactions listed above. (hint: one entry for each a through g and keep track of how each entry affects the stockholders’ equity section so you can move on the part b of this question.)
b. Prepare a Stockholders’ section of a classified balance sheet as of December 31, 2014.
Question 2: 5% points:
On January 1, 2014, Frick Company purchased 10,000 shares of the stock of Floozy, 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. Floozy made $25,000 of net income in 2014, and paid dividends of $10,000. The price of Floozy’s stock increased from $10 per share at the beginning of the year, to $12 per share at the end of the year.
Requirements:( Hint: Recall the equity method used when one company buys another company)
a. Prepare the January 1 & December 31 general journal entries for Frick Company.
b. How much should the Frick Company report on the balance sheet for the investment in Floozy as the end of 2014
Question 3: 15% points:
The following is selected information from Flip Company for the fiscal years ended December 31, 2014: Flip 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. Flip Company had interest expense of $50,000. Cash balance on January 1, 2014 was $250,000.
Requirements: Prepare Flip Company’s statement of cash flows for the year ended December 31, 2014 using the indirect method. Remember to prepare all 3 sections.
Question 4: 10% points:
Frick Corporation had the following bond transactions during the fiscal year 2014:
a. On January 1: issued ten (10), $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: Frick 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 method is used for these bonds is 12%.
c. On October 1: issued 10-year bonds $10,000 face value bonds, for $10,853 cash. The bonds have a stated rate of 8%, but an effective rate of 6%. Effective-interest 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.)
Question 5: 10% points:
Flip 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.
a. What is the breakeven point in sales dollars and in units if the fixed factory overhead increased by $1,700?
b. What is the breakeven point in sales dollars and in units
if costs remain as originally projected?
c. What would be the operating income be if sales units increased by 25%
Hint: Do the BE calculations based on the facts given, then redo calculations adjusting FC for a. and adjust CM ratio for increased Sales as in c.
Question 6: 5% points:
Flip manufactures footballs. 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. Floozy is offering a special order to buy 50,000 footballs for $7.50 each. There will be no additional selling expenses, and sufficient capacity exists to manufacture the extra footballs.
Requirements: Prepare an incremental analysis schedule to demonstrate by what amount would operating income be increased or decreased as a result of accepting the special order. Hint: Prepare short schedule to show what increased revenues and increased costs and change in income if special order is accepted.
Question 7: 5% points:
Flop Company manufactures 10,000 units of widgets for use in its annual production. Costs are direct materials $20,000, direct labor $55,000, variable overhead $45,000, and fixed overhead $70,000. Floozy Company has offered to sell Flop 10,000 units of widgets for $18 per unit. If Flop accepts the offer, some of the facilities presently used to manufacture widgets could be rented to a third party at an annual rental of $15,000. Additionally, $4 per unit of the fixed overhead applied to widgets would be totally eliminated.
Requirements: Prepare an incremental analysis schedule to demonstrate if Flop should accept Floozy’s offer.Hint: Show breakdown of increased/decreased revenues and costs for Produce and for Buy