Star Corporation issued both common and preferred stock during 20X6. The stockholders' equity sections of the

Chapter Two and Three Problems

1. Issuance of stock

Prepare journal entries to record the issuance of 100,000 shares of common stock at $20 per share for each of the following independent cases:

1. Jackson Corporation has common stock with a par value of $1 per share.
2. Royal Corporation has no-par common with a stated value of $5 per share.
3. French Corporation has no-par common; no stated value has been assigned

2. 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

—

Common

4,620,000

3,600,000

Retained earnings

8,470,000

6,920,000

Total stockholders' equity

$16,044,000

$12,770,000

1. Compute the number of preferred shares that were issued during 20X6.
2. Calculate the average issue price of the common stock sold in 20X6.
3. By what amount did the company's paid-in capital increase during 20X6?
4. Did Star's total legal capital increase or decrease during 20X6? By what amount?

3. 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.

• Case A—The bonds are issued at 100.
• Case B—The bonds are issued at 96.
• Case C—The bonds are issued at 105.

Southlake uses the straight-line method of amortization.

Instructions:

Complete the following table:

Case A

Case B

Case C

1. Cash inflow on the issuance date

_______

_______

_______

1. Total cash outflow through maturity

_______

_______

_______

1. Total borrowing cost over the life of the bond issue

_______

_______

_______

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

_______

_______

_______

1. Amortization for the year ended December 31, 20X1

_______

_______

_______

1. Unamortized premium as of December 31, 20X1

_______

_______

_______

1. Unamortized discount as of December 31, 20X1

_______

_______

_______

1. Bond carrying value as of December 31, 20X1

_______

_______

_______

4. Product costs and period costs

The costs that follow were extracted from the accounting records of several different manufacturers:

1. Weekly wages of an equipment maintenance worker
2. Marketing costs of a soft drink bottler
3. Cost of sheet metal in a Honda automobile
4. Cost of president's subscription to Fortune magazine
5. Monthly operating costs of pollution control equipment used in a steel mill
6. Weekly wages of a seamstress employed by a jeans maker
7. Cost of compact discs (CDs) for newly recorded releases of Rush, Billy Joel, and Bryan Adams
   1. Determine which of these costs are product costs and which are period costs.
   2. For the product costs only, determine those that are easily traced to the finished product and those that are not.

5. 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:

1. Total direct materials consumed
2. Total direct labor
3. Total prime cost
4. Total conversion cost

6. 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:

1. A schedule of cost of goods manufactured for the year ended December 31.
2. An income statement for the year ended December 31.

7. 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

$ —

Direct labor

6.5

—

Factory overhead

9

50,000

Selling

—

70,000

Administrative

—

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:

1. Determine the cost of the finished goods inventory of light-gauge aluminum.
2. Prepare an income statement for the current year ended December 31
3. 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?