The following events occurred during 2014 and were not recorded
The following events occurred during 2014 and were not recorded Question 1On December 31, 2014, Rayco Inc. had the following balances (all balances are normal):AccountsAmountPreferred Stock, ($100 par value, 5% noncumulative, 50,000 sharesauthorized, 10,000 shares issued and outstanding)$1,000,000Common Stock ($10 par value, 200,000 shares authorized, 100,000 sharesissued and outstanding)$1,000,000Paid-in Capital in Excess of par, Common150,000Retained Earnings700,000The following events occurred during 2014 and were not recorded:a. On January 1, Rayco declared a 5% stock dividend on its common stock when themarket value of the common stock was $15 per share. Stock dividends were distributedon January 31 to shareholders as of January 25.b. On February 15, Rayco reacquired 1,000 shares of common stock for $20 each.c. On March 31, Rayco reissued 250 shares of treasury stock for $25 each.d. On July 1, Rayco reissued 500 shares of treasury stock for $16 each.e. On October 1, Rayco declared full year dividends for preferred stock and $1.50 cashdividends for outstanding shares and paid shareholders on October 15.f.On December 15, Rayco split common stock 2 shares for 1.g. Net Income for 2014 was $275,000.Requirements:a. Prepare journal entries for the transactions listed above.b. Prepare a Stockholders’ section of a classified balance sheet as of December 31, 2014.Question 2On January 1, 2014, XYZ Company purchased 10,000 shares of the stock of Rayco, and didobtain significant influence. The investment is intended as a long-term investment. The stockwas purchased for $90,000, and represents a 30% ownership stake. Rayco made $25,000 of netincome in 2014, and paid dividends of $10,000. The price of Rayco’s stock increased from $10per share at the beginning of the year, to $12 per share at the end of the year.Requirements:a. Prepare the January 1 and December 31 general journal entries for XYZ Company.b. How much should the XYZ Company report on the balance sheet for the investment inRayco at the end of 2014?Question 3The following is selected information from Rayco Company for the fiscal years ended December31, 2014: Rayco Company had net income of $1,225,000. Depreciation was $500,000, purchasesof plant assets were $1,250,000, and disposals of plant assets for $500,000 resulted in a $50,000gain. Stock was issued in exchange for an outstanding note payable of $725,000. Accountsreceivable decreased by $25,000. Accounts payable decreased by $40,000. Dividends of$300,000 were paid to shareholders. Rayco Company had interest expense of $50,000. Cashbalance on January 1, 2014 was $250,000.Requirements: Prepare Rayco Company’s statement of cash flows for the year ended December31, 2014 using the indirect method.Question 4Rayco Corporation had the following bond transactions during the fiscal year 2014:a. On January 1: issued ten $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: Rayco Corporation issued $500,000 of 10%, 10-year bonds. The bondsdated January 1, 2014 were issued at 88.5, and pay interest on July 1 and January 1.Effective interest rate for these bonds is 12%. Straight-line amortization method isused.c. On October 1: issued 10-year bonds $10,000 face value bonds, for $10,853 cash. Thebonds have a stated rate of 9%, but an effective rate of 6%. Straight-line amortizationmethod is used. Interest is payable on October 1 and April 1.Requirements: Prepare all general journal entries for the three bonds issued and any interestaccruals and payments for the fiscal year 2014. (Round all calculations to nearest whole dollar.)Question 5XYZ 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 expensestotaled $1,500 ($500 variable and $1,000 fixed). Operating income was $2,500. Round all finalanswers to nearest dollar or whole number.Requirements:a. What is the break-even point in sales dollars and in units if the fixed factory overheadincreased by $1,700?b. What is the break-even point in sales dollars and in units if costs remain as originallyprojected?c. What would be the operating income if sales units increased by 25%?Question 6XYZ manufactures tote bags. The forecasted income statement for the year before anyspecial orders included sales of $4,000,000 (sales price is $10 per unit.) Manufacturingcost 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 theseforecasted amounts are $1,200,000 for manufacturing cost of goods sold and $100,000for selling expenses. Rayco is offering a special order to buy 50,000 tote bags for $7.50each. There will be no additional selling expenses, and sufficient capacity exists tomanufacture the extra tote bags.d. Requirements: Prepare an incremental analysis schedule to demonstrate what amountoperating income would increase or decrease as a result of accepting the special order.
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