TRANSACTION PROBLEM #1

COMPANY A Paul and George, friends from college days, formed a corporation, PC Global Networking, to perform computer consulting work. PC Global had the following transactions during the first month of operations:

7/1/97 Both Paul and George invested $10,000 in exchange for 100 shares of no-par common stock. Paul and George were to receive an annual salary of $24,000 each, payable semi-monthly on the 1st and 16th of the month.

7/2/97 PC Global leased office space for five years for $1,000 per month. The company paid the first and last month’s rent before occupying the office space. Assume a 3 year life, salvage value of 10%, S-L method

7/5/97 PC Global purchased a computer for $2,000. The invoice is due 2/10,

net 30.

7/10/97 Paul and George began a consulting engagement that was completed a week later, at which time PC Global billed total fees of $8,000.

7/16/97 Paul and George were both paid a semi-monthly salary of $1,000.

7/20/97 PC Global received $3,000 of the fees billed from the July 10-17 engagement.

7/25/97 PC Global received a retainer in the amount of $10,000 for services to begin August 1.

COMPANY B Keith and Mick formed a corporation to operate a sweatshirt stand on Venice Beach to sell sweatshirts and other items to tourists on Saturdays and Sundays. The corporation had the following transactions:

5/1/97 Both Keith and Mick invested $2,000 in exchange for 2000 shares of no-par common stock.

5/2/97 The corporation paid the city $120 for a license to operate the business for a year.

5/5/97 The corporation purchased 200 sweatshirts for $5 cash each.

5/12/97 In order to boost sales, Keith and Mick decided to advertise for two weekends in the local newspaper for $75.

5/15/97 The corporation purchased a small stand for $700. In order to make the stand more attractive to tourists, the corporation spent an additional $500 on shelving and "artwork". Keith and Mick estimate the stand will have a useful life of 5 years.

5/18-19/97 The corporation sold 150 sweatshirts for $9 cash each.

5/25/97 The corporation purchased 100 sweatshirts for $5 cash each.

5/25-26/97 The corporation sold 80 sweatshirts at $9 cash each.

5/27/97 The corporation paid both Keith and Mick $500 for their services in May.

 COMPANY C

Ace Corporation manufacturers a certain large machine used in the auto industry. At the start of the month of September, Ace Corporation had 600 units of raw material inventory costing $100 per unit. In addition, Ace had cash of $25,000, accounts payable of $20,000, and common stock of $15,000. During the month, Ace had the following transactions:

9/1/97 Purchased 200 more units of raw material at $100 per unit, payable in 30 days.

9/9/97 Received an order to build four machines. The customer will pay $100,000 for the complete order, but made a deposit of $25,000.

9/12/97 The eight employees began to build the four machines, using 150 units of raw material for each machine.

9/20/97 The accounts payable at the beginning of the month were paid.

9/27/97 The eight employees were paid $2,000 each for the construction of the machines. Office employees were paid $10,000.

9/30/97 The machines were completed and shipped and billed to the customer.

ASSIGNMENT

Prepare journal entries, including adjusting entries, post to T-accounts, and prepare financial statements for each of the above companies.

TRANSACTION PROBLEM #2

PART A

Steve and John organized The DGT Corporation on January 1. DGT will manufacture four types of executive desks. Both Steve and John invested $40,000 in exchange for 400 shares of no-par common stock.

During the first six months, DGT incurred the following costs and expenses:

Compute the final cost for each type of desk, assuming the overhead is allocated using the following bases:

a) Direct labor costs

b) Direct material costs

c) Total direct costs

d) Total units produced

 PART B

During the month of July, the Company sold the following units of the goods produced above:

Desk A 60 desks @ $300 each

Desk B 25 desks @ $600 each

Desk C 40 desks @ $400 each

Desk D 50 desks @ $300 each

Using each of the overhead allocations from above, prepare an income statement for The DGT Corporation for the month of July, assuming DGT did not produce any more desks, it incurred selling and administrative costs of $6,000, and it had an income tax rate of 30%.

The KING CORPORATION

The King Corporation is a manufacturer of plastic Valentine Hearts. King manufacturers two sizes of plastic hearts used to hold candy: the I Can’t Live Without You and the Let’s be Friends. The I Can’t Live Without You is bigger and brighter while the Let’s be Friends is smaller and plainer. King uses a process cost system to account for its manufacturing costs.

During the month of September, Kings manufacturing records for the molding department revealed the following:

Molding Dept. Friends Can’t Live

Unit information:

Beginning Work in Process 100 200

Started in September 400 700

Units finished during September 300 800

Cost information:

Beginning Work in Process $350.00 $1,100.00

Direct Materials, September 1,000.00 2,450.00

Direct Labor, September 592.50 1,950.00

Additional information:

Friends: Units in Work in Process on September 1 were 100% complete with respect to direct materials and 25% complete with respect to direct labor. Units in Work in Process on September 30 were 100% complete with respect to direct materials and 60% complete with respect to direct labor.

Can’t Live: Units in Work in Process on September 1 were 100% complete with respect to direct materials and 30% complete with respect to direct labor. Units in Work in Process on September 30 were 100% complete with respect to direct materials and 40% complete with respect to direct labor.

Manufacturing Overhead: All manufacturing overhead costs for the molding department are allocated at a rate of 150% of direct labor costs.

 1. For the month of September, what is the cost per equivalent unit of direct material? Direct labor?

Can’t Live Friends

Direct materials ___________ ___________

Direct labor ___________ ___________

2. Prepare a journal entry to record the transfer to the next process.

3. What is the balance of the WIP – molding as of 9/30?

TRANSACTION PROBLEM #3

Ann and Richard started a small partnership to sell small plastic toys to fast food restaurants. The toys were acquired from a wholesaler in packs of 20, and were sold only as whole packs, not as individual items.

The partnership was started in 1995, and within one year, grew to be quite profitable. Ann and Richard decided that they were going to need a better system of valuing their inventory of toys and measuring net income or losses. The only costs of the business were purchasing the toys and some minimal office expenses. Richard’s garage was used as a warehouse to store the inventory and also as office space, at no cost to the partnership. Ann and Richard shared net income and losses equally.

The following information is available for the first six months of 1997:

REQUIRED:

For the sixth months ended June 30, 1997, prepare journal entries to record the above transactions. (All purchases and sales were made on account.) Determine ending inventory cost of goods sold, and gross margin on sales amounts using first-in, first-out, last-in, last-out, (periodic and perpetual), and weighted average (periodic) methods of valuing inventory. Refer to Anthony, Essentials of Accounting, as needed.

 TRANSACTION PROBLEM #4

ZERB Corporation has been in existence for twenty years. At the beginning of 1997, stockholders’ equity consisted of $10 par common stock, $1,200,000; additional paid-in-capital, $2,000,000; and retained earnings, $3,500,000.

In order to expand ZERB’s operations, the board of directors approved the issuance of 5% no-par preferred stock, cumulative, fully-participating dividends. The preferred stock total issuance of $2,000,000, took place on January 2, 1997.

As 1997 progressed, interest rates were on the decline. In order to pay debt bearing high interest rates, ZERB issued unsecured 9%, 5-year, corporate bonds in the face amount of $1,000,000, interest payable semi-annually. The bonds were issued on June 1, when the market rate of interest was 8%.

For 1997, ZERB’s net income after bond interest expense was $500,000. The board of directors declared dividends of $200,000, payable on December 31, 1997.

 ASSIGNMENT

(a) Prepare journal entries relating to the issuance of the preferred stock and bonds, and the related interest and dividends. Do not consider the income tax effect of these transactions.