#1Barnes Company is considering two alternatives to finance its purchase of a new $4,000,000 office building.
(a) Issue 400,000 shares of common stock at $10 per share.
(b) Issue 7%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,500,000. The company has a 30% tax rate and has 600,000 shares of common stock outstanding prior to the new financing.
Calculate each of the following for each alternative:
(1) Net income.
(2) Earnings per share.
#2Smith Company has budgeted the following unit sales:
The finished goods units on hand on December 31, 2014, was 1,000 units. Each unit requires 2 pounds of raw materials that are estimated to cost an average of $3 per pound. It is the company’s policy to maintain a finished goods inventory at the end of each month equal to 10% of next month’s anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 20% of the pounds needed for the following month’s production. There were 3,920 pounds of raw materials on hand at December 31, 2014.
For the first quarter of 2015, prepare:
(1) a production budget
(2) a direct materials budget.
#3Fisanich Company purchased 35,000 shares of common stock of Pear Corporation as a long-term investment for $700,000. During the year, Pear Corporation reported net income of $300,000 and paid dividends of $100,000.
(a) Assuming that the 35,000 shares represent a 10% interest in Pear Corporation:
1. Prepare the journal entry to record the investment in Pear Corporation stock.
2. Prepare any entries that Fisanich Company should make in accounting for its investment in Pear Corporation stock during the year.
3. What is the balance of the Stock Investments account on Fisanich Company’s books at the end of the year?
(b) Repeat requirements (a) 1. 2. and 3. above except assume that the 35,000 shares represent a 20% interest in Pear Corporation.
#4Adelphonse Corporation issued $2 million, 10-year, 6% bonds on January 1, 2014.
Prepare the entry to record the sale of these bonds, assuming they were issued at:
#5Roland Corporation entered into the following transactions:
1. On January 1, 2014 Pear Car Rental leased a car to Roland Corporation for one year. Terms of the operating lease call for monthly payments of $650.
2. On January 1, 2014, Roland Corporation entered into an agreement to lease 20 machines from Pear Corporation. The terms of the lease agreement require an initial payment of $500,000 and then three annual rental payments of $600,000 beginning on December 31, 2014. The present value of the three rental payments is $1,492,108. The lease is a capital lease.
Prepare the appropriate journal entries to be made by Roland Corporation in January related to the lease transactions.
#6Pear Corporation is issuing $600,000 of 8%, 5-year bonds when potential bond investors want a return of 10%. Interest is payable semiannually.
The present value of 1 factors are 4%, .67556 and 5%, .61391. The present value of an annuity factors are 4%, 8.1109 and 5%, 7.72173.
Compute the market price (present value) of the bonds.
#7Washington Company produced and sold 50,000 units of product and is operating at 80% of plant capacity. Unit information about its product is as follows:
Sales Price $68
Variable manufacturing cost $42
Fixed manufacturing cost ($600,000 50,000) 12 54
Profit per unit $14
The company received a proposal from Pear Company to buy 10,000 units of Washington Company’s product for $49 per unit. This is a one-time only order and acceptance of this proposal will not affect the company’s regular sales. The president of Washington Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order.
Prepare a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of this order might have on the company’s income.
#8A comparative balance sheet for Richardson-Lau Corporation is presented below:
Comparative Balance Sheet
Cash $ 36,000 $ 31,000
Accounts receivable (net) 70,000 60,000
Prepaid insurance 25,000 17,000
Land 18,000 40,000
Equipment 70,000 60,000
Accumulated depreciation (20,000) (13,000)
Total Assets $199,000 $195,000
Liabilities and Stockholders’ Equity
Accounts payable $ 11,000 $ 6,000
Bonds payable 27,000 19,000
Common stock 140,000 115,000
Retained earnings 21,000 55,000
Total liabilities and stockholders’ equity $199,000 $195,000
1. Net loss for 2014 is $20,000.
2. Cash dividends of $14,000 were declared and paid in 2014.
3. Land was sold for cash at a loss of $4,000. This was the only land transaction during the year.
4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash.
5. $22,000 of bonds were retired during the year at carrying (book) value.
6. Equipment was acquired for common stock. The fair value of the stock at the time of the exchange was $25,000.
Prepare a statement of cash flows for the year ended 2014, using the indirect method.
#9The current sections of May Inc.’s balance sheets at December 31, 2013 and 2014, are presented here.
May’s net income for 2014 was $203,000. Depreciation expense was $25,000.
Cash $115,000 $99,000
Accounts receivable 105,000 89,000
Inventory 154,000 172,000
Prepaid expense 27,000 21,000
Total current assets $401,000 $381,000
Accrued expenses payable $ 15,000 $ 5,000
Accounts payable 85,000 93,000
Total current liabilities $100,000 $ 98,000
Prepare the net cash provided by operating activities section (ONLY!) of the company’s statement of cash flows for the year ended December 31, 2014, using the indirect method.
#10On June 30, 2014, Robertson, Inc. sold $3,000,000 (face value) of bonds. The bonds are dated June 30, 2014, pay interest semiannually on December 31 and June 30, and will mature on June 30, 2017. The following schedule was prepared by the accountant for Robertson, Inc for 2014.
Semi-Annual Interest to Interest Unamortized Bond
Interest Period be Paid Expense Amortization Amount CarryingValue
1 $120,000 $131,625 $11,625 63,375 1,936,625
On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)
1. What is the stated interest rate for this bond issue?
2. What is the market interest rate for this bond issue?
3. What was the selling price of the bonds as a percentage of the face value?
4. Prepare the journal entry to record the sale of the bond issue on June 30, 2014.
5. Prepare the journal entry to record the payment of interest and amortization on December 31, 2014.