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Question 1

On December 31, 2014, Frick Incorporated, had the following balances (all balances are normal):
Accounts

Amount

Preferred Stock, ($100 par value, 5% noncumulative,


50,000 shares authorized, 10,000 shares issued and
outstanding)

$1,000,000

Common Stock ($10 par value, 200,000 shares


authorized, 100,000 shares issued and outstanding)

$1,000,000

Paid-in Capital in Excess of par, Common

150,000

Retained Earnings
700,000
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.
Requirements:
a. Preparejournalentriesforthetransactionslistedabove.
b. PrepareaStockholders'sectionofaclassifiedbalancesheetasofDecember31,2014.

a. General Journal Entries:


Date
Jan. 01

Jan. 31

Feb. 15

Mar. 31

Account
Retained Earning
Stock dividends distributable
Paid in capital in excess of par

Debit
$75,000

Stock dividends distributable


Common stock

$50,000

Treasury Stock
Cash

$20,000

Cash

$50,000
$25,000

$50,000

$20,000
$6,250

Treasury stock
Paid in capital in excess of par treasury
July. 01

Oct. 01

Oct. 15

Cash
Paid in capital in excess of par - treasury
Retained earnings
Treasury stock

Retained Earnings
Dividends payable - Preferred
Dividends payable - Common
Dividends payable - Preferred
Dividends payable - Common
Cash

Dec. 15

Dec. 31

Credit

$5,000
$1,250
$8,000
$1,250
$750
$10,000
$2,07,12
5
$50,000
$1,57,125
$50,000
$1,57,12
5
$2,07,125

No - Entry

Income Summary
Retained earnings

$2,75,00
0
$2,75,000

b. Partial Classified Balance Sheet:


Flip Corporation
Balance Sheet (partial)
December 31, 2014
Stockholders equity
Share Capital
Preferred Stock, ($100 par value, 5%
noncumulative, 50,000 shares authorized,
10,000 shares issued and outstanding)
Common Stock ($5 par value, 400,000 shares
authorized, 210,000 shares issued and
outstanding)
Paid In capital in excess of par - Common
Total share capital
Retained Earnings
Total share capital and Retained earnings
Less: Treasury Stock
Stockholder's Equity

$10,00,000

$10,50,000
$1,75,000
$22,25,000
$6,92,125
$29,17,125
$5,000
$29,12,125

Question 2:
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:
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
a. General Journal Entries:
Date
2014
Jan. 1

Account

Debit
$90,0
00

Investment in Floozy

$90,0
00

Cash
(To record purchase of shares in Floozy)
Dec.
31

$7,50
0

Investment in Floozy

$7,50
0

Income on Investments
(To record share of net income in Floozy for the
year)
Dec.
31

$3,00
0

Cash
Investment in Floozy
(To record receipt of dividends from Floozy for the
year)

b. Stock Investments Accounts Balance 12/31/14:


Cost of Investments
Add: Income share
Less: Dividends received

Credi
t

$90,000
$7,500
$97,500
$3,000

$3,00
0

Stock Investment account Balance

$94,500

Question 3
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.
Flip Corporation
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flow from operating Activities
$12,25,0
00

Net Income
Adjustments to convert net income in net cash
flow from operating Activities
Depreciation
Gain on sale of plant assets
Decrease in Account Receivable
Decrease in Account Payable

$5,00,00
0
$50,000
$25,000
$40,000

Net cash flow from Operating Activities

$4,35,00
0
$16,60,0
00

Cash Flow from Investing Activities


Purchase of plant assets
Disposal of plant assets

$12,50,0
00
$5,00,00
0
$7,50,00
0

Net cash used by Investing Activities

Cash Flow from Financing Activities


Payment of dividends
Net cash used by Financing Activities
Net Increase in cash

$3,00,00
0
$3,00,00
0
$6,10,00

Cash Balance - Beginning


Cash Balance - Ending

0
$2,50,00
0
$8,60,00
0

Non - Cash Transactions


Issue of Common stock in exchange of Note payable

$7,25,00
0

Question 4:
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.)
Date
Jan. 01

Account
Cash

Debit
$10,20
0

$10,00
0
$200

Bonds Payable
Premium on Bonds Payable
(To record issue of Bonds Payable)
July. 01

July. 1

Interest Expense
Premium on Bonds Payable
Cash
(To record payment of Interest on bonds payable)
cash
Discount on Bonds Payable

$280
$20
$300

$4,42,5
00
$57,50
0
$5,00,0
00

Bonds Payable
(To record issue of bonds on discount)
Oct. 1

Cash

$10,85
3
$10,00
0
$853

Bonds Payable
Premium on Bonds Payable
(To record issue of Bonds Payable)
Dec. 31

Interest Expense
Premium on Bonds Payable
Interest Payable

$280
$20
$300

(To record payment of Interest on bonds payable A")


Dec. 31

Interest Expense

Credit

$26,55

0
Discount on Bonds Payable

$1,550
$25,00
0

Interest Payable
(To record payment of Interest on bonds payable "B")
Dec. 31

Interest Expense
Premium on Bonds Payable
Interest Payable
(To record payment of Interest on bonds payable "C")

$163
$37
$200

Question 5:
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.
Requirements:
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%
Proposed status

Sales

Pe
r
un Tota Percent
it
l
age
10 100
0
00
100%

Direct Labor

15

Direct Material

14

Variable Overhead
Variable selling expense
Variable Administrative expense

10
6
5

Total Variable cost

50

220
0
100
0
100
0
420
0
800

Fixed Factory overhead


Fixed Selling expense
Fixed Administrative expense
Total Fixed costs
Net operating Income

a.1.

Breakeven Sales Dollars

150
0
140
0
100
0
600
500
500
0

8400

15%
14%
10%
6%
5%
50%

22%
10%
10%
42%
8%

a.2.

Breakeven Units

84

Present status

Sales

Pe
r
un Tota Percent
it
l
age
10 100
0
00
100%

Direct Labor

15

Direct Material

14

Variable Overhead
Variable selling expense
Variable Administrative expense

10
6
5

Total Variable cost

50

Fixed Factory overhead

500
100
0
100
0
250
0
250
0

Fixed Selling expense


Fixed Administrative expense
Total Fixed costs
Net operating Income

b.1.
b.2.
c.

Breakeven Sales Dollars


Breakeven Units

150
0
140
0
100
0
600
500
500
0

15%
14%
10%
6%
5%
50%
5%
10%
10%
25%
25%

5000
50

Operating Income
If sales in units are increased by 25%
Per

Total

Percenta

Sales
Direct Labor
Direct Material
Variable Overhead
Variable selling expense
Variable Administrative
expense
Total Variable cost

unit
100

ge
12500

100%

15
14
10
6

1875
1750
1250
750

15%
14%
10%
6%

5
50

625
6250

5%
50%

500
1000

4%
8%

1000
2500
3750

8%
20%
30%

Fixed Factory overhead


Fixed Selling expense
Fixed Administrative
expense
Total Fixed costs
Net operating Income

Question 6:
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.
Flip Enterprises
Incremental Analysis
Special Order
With
Special
Difference
order
4,00,000
4,50,000
50,000
$40,00,000 $43,75,000 $3,75,000
Present

Units
Sales
Less: Variable costs
Cost of goods sold
Selling expenses
Total Variable expenses

$20,00,000 $22,50,000
$2,00,000 $2,00,000
$22,00,000 $24,50,000

$2,50,000
$0
$2,50,000

Fixed costs
Cost of goods sold
Selling expenses
Total Fixed costs

$12,00,000 $12,00,000
$1,00,000 $1,00,000
$13,00,000 $13,00,000

$0
$0
$0

Total costs

$35,00,000 $37,50,000

$2,50,000

Operating Income

$5,00,000

$6,25,000

$1,25,000

Question 7:
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.
Flop Inc.
Incremental Analysis
To Produce or Buy
Direct Material
Direct Labor
Variable overhead
Fixed overhead

Produce
$20,000
$55,000
$45,000
$70,000

Cost of buying
Rental revenue
Total costs

$1,90,00
0

Buy

$30,000
$1,80,00
0
-$15,000
$1,95,00
0

The total cost of Buying is more than the cost of manufacturing,


Flop should not accept the offer of Floozy.