Posted: May 5th, 2023

ACCT 221On December 31, 2014, Rayco Inc. had the following balances FINAL EXAM

Ensure to include correct dollar signs, underlines & double underlines.Question 1 (30 Points)On December 31, 2014, Rayco Inc. had the following balances (all balances arenormal):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 weredistributed on 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 December31, 2014.Question 2 ( 5 points)On January 1, 2014, XYZ Company purchased 10,000 shares of the stock of Rayco,and did obtain significant influence. The investment is intended as a long-terminvestment. The stock was purchased for $90,000, and represents a 30% ownershipstake. Rayco made $25,000 of net income in 2014, and paid dividends of $10,000. Theprice of Rayco's stock increased from $10 per share at the beginning of the year, to $12per share at the end of the year.Requirements:a. Prepare the January 1 and December 31 general journal entries for XYZCompany.b. How much should the XYZ Company report on the balance sheet for theinvestment in Rayco at the end of 2014?Question 3 ( 15 points)The following is selected information from Rayco Company for the fiscal years endedDecember 31, 2014: Rayco 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 outstandingnote payable of $725,000. Accounts receivable decreased by $25,000. Accountspayable decreased by $40,000. Dividends of $300,000 were paid to shareholders.Rayco Company had interest expense of $50,000. Cash balance on January 1, 2014was $250,000.Requirements: Prepare Rayco Company's statement of cash flows for the yearended December 31, 2014 using the indirect method.Hint (recall the 3 sections)Question 4 (10 points)Rayco Corporation had the following bond transactions during the fiscal year2014:a. On January 1: issued ten $1,000 bonds at 102. The 5-year bonds is datedJanuary 1, 2014. The contract interest rate is 6%. Straight-line amortizationmethod 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. Thebonds dated January 1, 2014 were issued at 88.5, and pay interest on July 1and January 1. Effective interest rate for these bonds is 12%. Straight-lineamortization method is used.c. On October 1: issued 10-year bonds $10,000 face value bonds, for $10,853cash. The bonds have a stated rate of 9%, but an effective rate of 6%. Straightline amortization method is used. Interest is payable on October 1 and April 1.Requirements: Prepare all general journal entries for the three bonds issued andany interest accruals and payments for the fiscal year 2014. (Round allcalculations to nearest whole dollar.)Hint (think premiums and discounts)Question 5 (10 points)XYZ had sales of $10,000 (100 units at $100 per). Manufacturing costs consisted ofdirect labor $1,500, direct materials $1,400, variable factory overhead $1,000, and fixedfactory overhead $500. The company did not maintain any inventories, so total cost ofgoods sold was $4,400. Selling expenses totaled $1,600 ($600 variable and $1,000fixed), 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 wholenumber.Requirements:a. What is the break-even point in sales dollars and in units if the fixedfactory overhead increased by $1,700?b. What is the break-even point in sales dollars and in units if costs remainas originally projected?c. What would be the operating income if sales units increased by 25%?Question 6 ( 5 points)XYZ 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.Requirements: Prepare an incremental analysis schedule to demonstrate whatamount operating income would increase or decrease as a result of accepting thespecial order.Hint: think differences between accepting the order or not.Question 7 ( 5 points)RSW Company manufactures 10,000 units of wheel sets for use in its annualproduction. Costs are as follows: direct materials are $20,000; direct labor is $55,000;variable overhead is $45,000; and fixed overhead is $70,000. Rayco Company hasoffered to sell RSW 10,000 units of wheel sets for $18 per unit. If RSW accepts theoffer, some of the facilities presently used to manufacture wheel sets could be rented toa third party at an annual rental of $15,000. Additionally, $4 per unit of the fixedoverhead applied to wheel sets would be totally eliminated.Requirements: Prepare an incremental analysis schedule to demonstrate if RSWshould accept Rayco's offer.Hint: Set up 2 columns and show differences in income and costs for eachcolumn.

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