Full factory operations were commenced on December 1, 1916, and orders were taken for Knoxfrauds for delivery beginning with the first of the year.
It was determined to extend the current fiscal period and not close the books until December 31, 1917.
Call No. 1 on unpaid subscriptions to capital stock for one-half the outstanding was made on February 25, 1917.
The advertising campaign was producing results so that to fill orders the factory had to work two shifts of men beginning with March 1, 1917. As a result of seeming prosperity and a discontent engendered by labor leaders who had recently unionized the works, a demand for a 15% increase in wages was made and refused, resulting in a walk-out on March 30. A patrol against strike-breakers was established on April 2, after about one-third of the full complement of workers needed for operation had been secured. Some of these defected and the rest were quartered in the shops to prevent violence. After three weeks of partial operation at an increased expense of $1,500 directly attributed to the strike, one of the boilers exploded damaging the building and equipment, the resulting fire consuming supplies and damaging raw materials. An investigation placed the blame on a half-crazed workman whose sympathies were with the strikers. Hospital fees for injured workmen amounted to $500. (Record these two items as cash expenditures for the purposes named under date of April 20.) The insurance companies settled the losses as follows: the building and the power equipment on which the estimated damage was $3,500 were placed in complete repair; the estimated damage on materials, determined after an inventory and comparison with stock records, amounted to $4,000 and was covered by $3,200 insurance which was paid. In making the estimate, scrap value of damaged goods was placed at $1,000 but only realized $750 when sold; machinery costing $3,500 on November 30, with a scrap value of $500, realized on sale by the company $650, the insurance received being $2,000. (Depreciation on the machinery at the rate of 8⅓% annually on cost value is to be taken into account, and the portion of the unexpired insurance—roughly estimated at $150—now canceled by the payment of the insurance on both raw materials and machinery is to be considered in making charges to the Fire Loss account.) Additional loss and expense due to decreased production and cancellation of orders because of not being able to deliver goods when promised was estimated at $7,500. The strike was finally settled by granting a 5% increase in wages.
The directors had under consideration the incorporation with the Knoxfraud of a patent listing and adding device owned by J. Q. Osgood. In view of the need of some additional capital anyway due to the strike losses, it was decided to incorporate the new device now, since it would be easier to make the needed changes at this time than after operations had been resumed. Accordingly, a rearrangement of the machinery was necessary to make room for the new machinery and place it for proper routing of the product. This entailed a cash expenditure of $750 for the rearrangement, and $5,500 for new machines to replace those disposed of and to manufacture the new device. (Make the record as of April 30.) The contract entered into with Osgood was on a royalty basis per unit turned out by the machines and for one year’s time beginning May 1, 1917. The directors decided on a continuation of the advertising campaign. To provide funds for these purposes a bond issue was determined upon—$20,000 20-year 6%, interest coupons redeemable November 1, and May 1,—secured by mortgage on the factory and its equipment. The trust agreement provided for the payment at the close of each fiscal year of $750 out of profits into the hands of the Guaranty Trust Co. for investment in securities until a sinking fund sufficient to retire the bonds at their maturity shall have been established. $15,000 of the bonds were offered for sale and were purchased at 95 for cash except one purchase on a note for $950. The remaining $5,000 were held in the treasury until needed.
Record the above transactions as of the dates given—the bond transactions took place on May 1.
Instructions
October 31. The columns in sales journal, sales returns and allowances journal, and voucher register headed “Sundry Office Supplies,” will now be given the headings “Knoxfraud” for the first two journals, and “Raw Materials” for the voucher register.
November 10. A part of the charge to Raw Materials must be made in the general journal. “Prepayment on Purchases” account will be closed.
November 30. Record the note payable secured by mortgage under the title “Purchase Money Mortgage on Machinery.” Voucher the cash portion of this purchase of machinery. Transfer the cost of concrete platforms from Buildings to Machinery account. This had previously been charged to Buildings and is merely a transfer entry here. Run Noble’s salary through the voucher register as a cash transaction, making the proper distribution of it. The payment of $550.50 for connecting power is to be charged to Power Equipment.