Select Page

Chapter Two and Three Problems
Please complete the following 7 exercises below in either Excel or a word document (but must be single
document). You must show your work where appropriate (leaving the calculations within Excel cells is
acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission
button.

Chapter 2 Exercise 1
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:
a. Jackson Corporation has common stock with a par value of \$1 per share.
b. Royal Corporation has no-par common with a stated value of \$5 per share.
c. French Corporation has no-par common; no stated value has been assigned

Chapter 2 Exercise 3
3. 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.

Preferred stock, \$100 par value, 10%
Common stock, \$10 par value

20X6
\$580,000
2,350,000

20X5
\$500,000
1,750,000

Paid-in capital in excess of par value
Preferred
Common
Retained earnings
Total stockholders’ equity

24,000
4,620,000
8,470,000
\$16,044,000

3,600,000
6,920,000
\$12,770,000

a. Compute the number of preferred shares that were issued during 20X6.
b. Calculate the average issue price of the common stock sold in 20X6.
c. By what amount did the company’s paid-in capital increase during 20X6?
d. Did Star’s total legal capital increase or decrease during 20X6? By what amount?

Chapter 2 Problem 1
1. 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:
a. Cash inflow on the issuance date
b. Total cash outflow through maturity
c. Total borrowing cost over the life of the bond issue
d. Interest expense for the year ended December 31,
e.
f.
g.
h.

20X1
Amortization for the year ended December 31, 20X1
Unamortized premium as of December 31, 20X1
Unamortized discount as of December 31, 20X1
Bond carrying value as of December 31, 20X1

Case A
_______
_______
_______

Case B
_______
_______
_______

Case C
_______
_______
_______

_______
_______
_______
_______
_______

_______
_______
_______
_______
_______

_______
_______
_______
_______
_______

Chapter 3 Exercise 1
1. 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
a. Determine which of these costs are product costs and which are period costs.
b. For the product costs only, determine those that are easily traced to the finished product and
those that are not.
Chapter 3 Exercise 2
2. 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

35,000

Fixed

46,000

Sales commissions

20,000

Compute:
a. Total direct materials consumed
b. Total direct labor
c. Total prime cost
d. Total conversion cost

Chapter 3 Exercise 5
5. Schedule of cost of goods manufactured, income statement
The following information was taken from the ledger of Jefferson Industries, Inc.:
\$85,00
\$59,00
Direct labor
0
expenses
0
Selling
34,000
Work in. process
expenses
300,00
Sales
Jan. 1
29,000
0
Finished
Dec. 31
21,000
goods

Jan. 1
Dec. 31
Raw
(direct)
materials
on hand
Jan. 1
Dec. 31

115,00
0
131,00
0

Direct material
purchases

88,000

Depreciation: factory

18,000

Indirect
materials
used

10,000

31,000
40,000

Indirect labor
Factory taxes
Factory utilities

24,000
8,000
11,000

Prepare the following:
a. A schedule of cost of goods manufactured for the year ended December 31.
b. An income statement for the year ended December 31.
Chapter 3 Problem 3
3. 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
Direct materials
Direct labor
Selling

Variable
Cost
\$4.50
6.5
9

Fixed Cost
\$—

50,000
70,000
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:
a. Determine the cost of the finished goods inventory of light-gauge aluminum.
b. Prepare an income statement for the current year ended December 31
c. 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?