1. On January 1, 2013, Darrow Corporation issued $5,000,000, 10-year, 8% bonds at 103. Interest is payable semiannually on January 1 and July

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1. On January 1, 2013, Darrow Corporation issued $5,000,000, 10-year, 8% bonds
at 103. Interest is payable semiannually on January 1 and July 1. The journal
entry to record this transaction on January 1, 2013 is
a. Cash ............................................................................ 5,000,000
Bonds Payable ..................................................... 5,000,000
b. Cash ............................................................................ 5,150,000
Bonds Payable ..................................................... 5,150,000
c. Premium on Bonds Payable ........................................ 150,000
Cash ............................................................................ 5,000,000
Bonds Payable ..................................................... 5,150,000
d. Cash ............................................................................ 5,150,000
Bonds Payable ..................................................... 5,000,000
Premium on Bonds Payable ................................ 150,000
2. Vitale Company issued 500 shares of no-par common stock for $5,500. Which of
the following journal entries would be made if the stock has a stated value of
$2 per share?
a. Cash 5,500
Common Stock 5,500
b. Cash 5,500
Common Stock 1,000
Paid-in Capital in Excess of Par 4,500
c. Cash 5,500
Common Stock 1,000
Paid-in Capital in Excess of Stated Value 4,500
d. Common Stock 5,500
Cash 5,500
ACCT 221 Final Exam Spring 14 3
3. Reed industries owns 45% of Newton Company. For the current year,
Newton reports net income of $250,000 and declares and pays a $60,000
cash dividend. Which of the following correctly presents the journal entries to
record Reed’s equity in Newton’s net income and the receipt of dividends
from Newton?
a. Dec. 31 Stock Investments .......................... 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash ................................................ 27,000
Stock Investments .................... 27,000
b. Dec. 31 Stock Investments ........................... 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash ................................................. 60,000
Stock Investments ..................... 60,000
c. Dec. 31 Stock Investments .......................... 85,500
Revenue from Stock Investments 85,500
Dec. 31 Cash ................................................. 27,000
Stock Investments ..................... 27,000
d. Dec. 31 Revenue from Stock Investments 112,500
Stock Investments ............................................ 112,500
Dec. 31 Stock Investments ........................... 27,000
Cash........................................ 27,000
4. Mah, Inc. has the following income statement (in millions):
Mah, INC.
Income Statement
For the Year Ended December 31, 3
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136
Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
a. 30%
b. 40%
c. 100%
d. None of the above
ACCT 221 Final Exam Spring 14 4
5. Talbot, Inc. completed Job No. B14 during 2013. The job cost sheet listed the
following:
Direct materials $55,000
Direct labor $30,000
Manufacturing overhead applied $20,000
Units produced 3,000 units
Units sold 1,800 units
How much is the cost of the finished goods on hand from this job?
a. $105,000
b. $63,000
c. $42,000
d. $51,000
6. In the month of June, a department had 20,000 units in beginning work in
process that were 70% complete. During June, 80,000 units were transferred
into production from another department. At the end of June there were
10,000 units in ending work in process that were 40% complete. Materials
are added at the beginning of the process, while conversion costs are
incurred uniformly throughout the process. The equivalent units of production
for materials for June were
a. 90,000 equivalent units.
b. 100,000 equivalent units.
c. 104,000 equivalent units.
d. 80,000 equivalent units.
7. A company budgeted unit sales of 204,000 units for January, 2013 and 240,000
units for February, 2013. The company has a policy of having an inventory of
units on hand at the end of each month equal to 30% of next month's
budgeted unit sales. If there were 61,200 units of inventory on hand on
December 31, 2013, how many units should be produced in January, 2013 in
order for the company to meet its goals?
a. 214,800 units
b. 204,000 units
c. 193,200 units
d. 276,000 units
ACCT 221 Final Exam Spring 14 5
8. A company's planned activity level for next year is expected to be 200,000
machine hours. At this level of activity, the company budgeted the following
manufacturing overhead costs:
Variable Fixed
Indirect materials $280,000 Depreciation $120,000
Indirect labor 400,000 Taxes 20,000
Factory supplies 40,000 Supervision 100,000
A flexible budget prepared at the 160,000 machine hours level of activity
would show total manufacturing overhead costs of
a. $576,000.
b. $720,000.
c. $768,000.
d. $816,000.
9. A company developed the following per-unit standards for its product: 2 pounds
of direct materials at $4 per pound. Last month, 1,500 pounds of direct
materials were purchased for $5,700. The direct materials price variance for
last month was
a. $5,700 favorable.
b. $300 favorable.
c. $150 favorable.
d. $300 unfavorable.
10. In incremental analysis,
a. costs are not relevant if they change between alternatives.
b. all costs are relevant if they change between alternatives.
c. only fixed costs are relevant.
d. only variable costs are relevant.
ACCT 221 Final Exam Spring 14 6
Problem 1: 15 points
Here are comparative balance sheets for Delaney Company.
Delaney Company
Comparative Balance Sheets
December 31, 2013
Assets 2013 2012
Cash $ 43,000 $ 10,000
Accounts receivable 18,000 14,000
Inventories 25,000 18,000
Prepaid expenses 6,000 9,000
Long-term investments 0 18,000
Equipment 60,000 32,000
Accumulated depreciation—Equipment (20,000) (14,000)
Total assets $ 122,000 $ 87,000
Liabilities and Stockholder’s Equity
Accounts payable $ 17,000 $ 7,000
Bonds payable 37,000 47,000
Common stock ($1 par) 40,000 23,000
Retained earnings 28,000 10,000
Total liabilities and stockholder’s equity $ 122,000 $ 87,000
Additional information:
1. The 2013 Income Statement reported $6,000 in depreciation expense, a $4,000
loss on sale of investments and Net income of $43,000.
2. Cash dividends of $15,000 were declared and paid.
3. Long-term investments that has a cost of $18,000 were sold for $14,000
ACCT 221 Final Exam Spring 14 7
4. Sales for 2013 were $120,000.
Instructions: Prepare a statement of cash flows for 2013 using the indirect method.
Problem 2: 10 points
Hayes Corporation is projecting a cash balance of $31,785 in its
December 31, 2013, balance sheet. Hayes’ schedule of expected
collections from customers for the first quarter of 2013 shows total
collections of $189,885. The schedule of expected payments for direct
materials for the first quarter of 2013 shows total payments of $40,200.
Other information gathered for the first quarter of 2013 is: sale of
equipment $3,392; direct labor $70,178, manufacturing overhead
$34,583, and purchase of securities $12,372. Selling and
administrative expenses are projected to be $45,117; this figure
includes $1,117 in depreciation expense on the office equipment. All
costs and expenses will be paid in cash. Hayes wants to maintain a
balance of at least $30,000 cash at the end of each quarter.
Instructions: Complete the cash budget for the first quarter.
Problem 3: 10 points
Doherty Corporation has the following cost records for June 2013.
Indirect factory labor $ 4,612 Factory utilities $ 601
Direct materials used 22,361 Depreciation, factory
equipment 1,585
Work in process, 6/1/12 2,769 Direct labor 31,084
Work in process,
6/30/12 3,733 Maintenance, factory
equipment 1,792
Finished goods, 6/1/12 4,609 Indirect materials 2,268
Finished goods, 6/30/12 7,429 Factory manager's salary 3,315
Instructions: Prepare a cost of goods manufactured schedule for June
2013.
ACCT 221 Final Exam Spring 14 8
Problem 4: 4 points
Hawkins Corporation has 72,615 shares of common stock outstanding.
It declares a $2.10 per share cash dividend on August 1 to stockholders
of record on September 15. The dividend is paid on October 31.
Instructions: Prepare the entries on the appropriate dates to record the
declaration and payment of the cash dividend.
Problem 5: 10 points
Arthur Manufacturing incurs unit costs of $7.90 ($6.10 variable and
$1.80 fixed) in making a sub-assembly part for its finished product. A
supplier offers to make 12,000 of the assembly part at $5.75 per unit. If
the offer is accepted, Arthur will save all variable costs but no fixed
costs.
Instructions: Prepare an analysis showing the total cost savings, if any,
Arthur will realize by buying the part.
Problem 6: 5 points
On July 1, Wagner Corporation purchases 500,000 shares of its $6 par
value common stock for the treasury at a cash price of $10 per share.
On September 1, it sells 275,000 shares of the treasury stock for cash
at $13 per share. The balance in the retained earnings account is
$6,345,000.
Instructions: Journalize the two treasury stock transactions.
Problem 7: 4 points
Ketel Company has a unit-selling price of $500, variable costs per unit
of $269, and fixed costs of $265,580.
Instructions: Compute the break-even point in units using either (a) the
mathematical equation or (b) contribution margin per unit. Round
answer up to the next whole unit.
ACCT 221 Final Exam Spring 14 9
Problem 8: 10 points
Mathers Company has a factory machine with a book value of $89,851
and a remaining useful life of 4 years. A new machine is available at a
cost of $325,275. This machine will have a 4-year useful life with no
salvage value. The new machine will lower annual variable
manufacturing costs from $630,925 to $425,840.
Instructions: Prepare an analysis showing whether the old machine
should be retained or replaced.
Problem 9: 6 points
For Lopez Company, variable costs are 68% of sales, and fixed costs
are $215,000. Management's net income goal is $78,610.
Instructions: Compute the required sales needed to achieve
management's target net income of $78,610.
ACCT 221 Final Exam Spring 14 10
Essay Question: 6 points
Keller Company requires its marketing managers to submit estimated
cost-volume-profit data on all requests for new products, or expansions
of a product line.
Gina Lamb is a new manager. Her calculations show a fixed cost for a
new project at $100,000 and a variable cost of $5. Since the selling
price is only $15 for the proposed product, 10,000 would need to be
sold to break even. That is approximately twice the volume estimate for
the first year. She shares her dismay with Anne Smythe, another
manager.
Anne strongly advises her to revise her estimates. She points out that
several of the costs that had been classified as fixed costs could be
considered variable, since they are step costs and mixed costs. When
the data has been revised classifying those costs as variable costs, the
project appears viable.
Required:
1. Who are the stakeholders in this decision?
2. Is it ethical for Gina to revise the costs as indicated? Briefly explain.
3. What should Gina do?

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