Finance and Accounting

 

1. On January 1, 2012, Sunrise Corporation issued $4,000,000, 9%, 5-year bonds dated January 1, 2012,
at 94. The bonds pay semiannual interest on January 1 and July 1. The company uses the straight-line method
of amortization and has a calendar year end.

Required:
Prepare all the journal entries that Sunrise Corporation would make related to this bond issue through
January 1, 2013. Be sure to indicate the date on which the entries would be made.
2. Santos Company had the following transactions pertaining to short-term investments in equity
securities.
Jan. 1 Purchased 1,500 shares of Quinn Company stock for $9,250 cash plus brokerage fees of $300.
June 1 Received cash dividends of $.30 per share on Quinn Company stock.
Sept. 15 Sold 400 shares of Quinn Company stock for $2,500 less brokerage fees of $100.
Dec. 1 Received cash dividends of $.75 per share on Quinn Company stock.
Required:
(a) Journalize the transactions.
(b) Indicate the income statement effects of the transactions.
3. Nichol Corporation’s comparative balance sheets are presented below.
NICHOL CORPORATION
Comparative Balance Sheets
December 31
2012 2011
Cash $ 12,200 $ 17,700
Accounts receivable 25,200 22,300
Investments 25,000 16,000
Equipment 60,000 70,000
Accumulated depreciation (14,000) (10,000)
Total $108,400 $116,000
Accounts payable $ 14,600 $11,100
Bonds payable 10,000 30,000
Common stock 50,000 45,000
Retained earnings 33,800 29,900
Total $108,400 $116,000

Additional information:
1. Net income was $17,300. Dividends declared and paid were $13,400.
2. Equipment which cost $10,000 and had accumulated depreciation of $2,200 was sold for $3,800.
3. All other changes in noncurrent account balances had a direct effect on cash flows, except the
change in accumulated depreciation.

Required:
(a) Prepare a statement of cash flows for 2012 using the indirect method.
(b) Compute free cash flow.

 

 

 
4. The financial statements of Gaines Company appear below:

GAINES COMPANY
Comparative Balance Sheet
December 31,
———————————————————————————————————————————
Assets 2013 2012
Cash $ 25,000 $ 40,000
Short-term investments 15,000 60,000
Accounts receivable (net) 50,000 30,000
Inventory 50,000 70,000
Property, plant and equipment (net) 260,000 300,000
Total assets $400,000 $500,000

Liabilities and stockholders’ equity
Accounts payable $ 20,000 $ 30,000
Short-term notes payable 30,000 90,000
Bonds payable 90,000 160,000
Common stock 150,000 150,000
Retained earnings 110,000 70,000
Total liabilities and stockholders’ equity $400,000 $500,000

 

GAINES COMPANY
Income Statement
For the Year Ended December 31, 2013

Net sales $400,000
Cost of goods sold 240,000
Gross profit 160,000
Expenses
Operating expenses $42,000
Interest expense 18,000
Total expenses 60,000
Income before income taxes 100,000
Income tax expense 30,000
Net income $ 70,000
Additional information:
a. Cash dividends of $23,000 were declared and paid in 2013.
b. Weighted-average number of shares of common stock outstanding during 2013 was 30,000 shares.
c. Market value of common stock on December 31, 2013, was $21 per share.

Required:
Using the financial statements and additional information, compute the following ratios for Gaines Company
for 2013. Show all computations. Show computations.

1. Current ratio _________.
2. Return on common stockholders’ equity _________.
3. Price-earnings ratio _________.
4. Acid-test ratio _________.
5. Receivables turnover _________.
6. Times interest earned _________.
7. Profit margin _________.
8. Days in inventory _________.
9. Payout ratio _________.
10. Return on assets _________.
5. Glavine Corporation incurred the following costs while manufacturing its product.

Materials used in product $120,000 Advertising expense $45,000
Depreciation on plant 60,000 Property taxes on plant 19,000
Property taxes on store 7,500 Delivery expense 21,000
Labor costs of assembly-line workers 110,000 Sales commissions 35,000
Factory supplies used 23,000 Salaries paid to sales clerks 50,000

Work-in-process inventory was $22,000 at January 1 and $15,500 at December 31. Finished goods inventory was
$65,000 at January 1 and $50,600 at December 31.

Required:
(a) Compute cost of goods manufactured.
(b) Compute cost of goods sold. (10 min.)
6. Klinger Company estimates that annual manufacturing overhead costs will be $4,200,000 for 2012. The
actual overhead costs at the end of 2012 are $4,360,000. Activity base information for 2012 follows:
Activity Base Estimated Actual
Direct Labor Cost $3,000,000 $3,150,000
Direct Labor Hours 200,000 212,000
Machine Hours 150,000 152,000
Required:
(a) Compute the predetermined overhead rate for each activity base.
(b) Compute the amount of overhead applied in 2012 for each activity base.
(c) Compute the amount of under- or overapplied overhead for 2012 for each activity base.

 

 

 

7. Sanders Company has two production departments: Fabricating and Finishing. Beginning inventories are:
Work in Process—Fabricating, $6,030; Work in Process—Finishing, $4,100; and Finished Goods, $5,600. During
the month the following transactions occurred:
1. Purchased $40,000 of raw materials on account.
2. Incurred $65,000 of factory labor. Wages are unpaid.
3. Incurred $50,000 of manufacturing overhead; $40,000 was paid and the remainder is unpaid.
4. Requisitioned materials for Fabricating, $10,000 and Finishing, $8,000.
5. Used factory labor for Finishing, $52,000 and Fabricating, $13,000.
6. Applied $45,000 of overhead based on machine hours used in each department. The Finishing Department
used twice as many machine hours as did Fabricating.

 

 

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