The following events occurred during 2014 and were not recorded

Question 1
On December 31, 2014, Rayco Inc. had the following balances (all balances are normal):
Accounts

Amount

Preferred Stock, ($100 par value, 5% noncumulative, 50,000 shares
authorized, 10,000 shares issued and outstanding)

$1,000,000

Common Stock ($10 par value, 200,000 shares authorized, 100,000 shares
issued and outstanding)

$1,000,000

Paid-in Capital in Excess of par, Common

150,000

Retained Earnings

700,000

The following events occurred during 2014 and were not recorded:
a. On January 1, Rayco declared a 5% stock dividend on its common stock when the
market value of the common stock was $15 per share. Stock dividends were distributed
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 cash
dividends 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 2
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-term investment. The stock
was purchased for $90,000, and represents a 30% ownership stake. Rayco made $25,000 of net
income in 2014, and paid dividends of $10,000. The price of Rayco'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 and December 31 general journal entries for XYZ Company.
b. How much should the XYZ Company report on the balance sheet for the investment in
Rayco at the end of 2014?
Question 3
The following is selected information from Rayco Company for the fiscal years ended December
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 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. Rayco Company had interest expense of $50,000. Cash
balance on January 1, 2014 was $250,000.
Requirements: Prepare Rayco Company's statement of cash flows for the year ended December
31, 2014 using the indirect method.
Question 4
Rayco 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 bonds
dated 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 is
used.
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%. Straight-line amortization
method is used. Interest is payable on October 1 and April 1.
Requirements: Prepare all 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 5
XYZ 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 break-even point in sales dollars and in units if the fixed factory overhead
increased by $1,700?
b. What is the break-even point in sales dollars and in units if costs remain as originally
projected?
c. What would be the operating income if sales units increased by 25%?
Question 6
XYZ manufactures tote bags. 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. Rayco is offering a special order to buy 50,000 tote bags for $7.50
each. There will be no additional selling expenses, and sufficient capacity exists to
manufacture the extra tote bags.
d. Requirements: Prepare an incremental analysis schedule to demonstrate what amount
operating income would increase or decrease as a result of accepting the special order.