Question 1:
On January 1, 2014, Flip Company purchased 10,000 shares of the stock of Flimsy, 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. Flimsy made $25,000 of net income in 2014, and paid dividends of $10,000. The price of Flimsy'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 Flip Company.
b. How much should the Flip Company report on the balance sheet for the investment in Flimsy as the end of 2014
Question 2:
The following is selected information from Flimsy Company for the fiscal years ended December 31, 2014: Flimsy 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. Flimsy Company had interest expense of $50,000. Cash balance on January 1, 2014 was $250,000.
Requirements: Prepare Flimsy Company's statement of cash flows for the year ended December 31, 2014 using the indirect method.
Question 3:
Flimsy 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, are 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. Prepare the journal entries for the January 1 issuance and interest payment on July 1 and December 31.
b. On July 1: Flimsy 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%. Prepare the journal entries for the July 1 issuance and interest payment on Dec 31.
c. On October 1: issued 10-year bonds $10,000 face value bonds, for $10,853 cash. The bonds have a stated rate of 9%, but an effective rate of 6%. Effective interest method is used. Interest is payable on October 1 and April 1. Prepare the journal entries for the October 1 issuance and interest payment on December 31.
Requirements: Prepare all of the above 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.)
Question 4:
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%
Question 5:
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. Flimsy 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.
Question 6:
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. Flimsy 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 Flimsy's offer.