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ACCT 352 Final Exam W 2009 with solution

ACCT 352 Final Exam W 2009 with solution - Last Name First...

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ACCT 352 Intermediate Financial Accounting 2 Last Name: ______________________ First Name: ____________________ Student Number: _____________________ Examiner: Professor Zvi Singer Associate Examiner: Philippe Levy INTERMEDIATE FINANCIAL ACCOUNTING 2 ACCT 352- All Sections WINTER 2009 FINAL EXAMINATION DATE: Tuesday, April 21, 2009 TIME: 2:00pm-5:00pm INSTRUCTIONS: This is a CLOSED BOOK exam. Answer all questions in the examination booklets provided. Return all materials . ONLY TRANSLATION dictionaries ARE PERMITTED . Noiseless, non-programmable calculators are PERMITTED . This exam consists of 7 questions on a total of 13 pages including this cover page. Please ensure that you have a complete exam paper before starting. YOU MUST RETURN YOUR COMPLETE EXAMINATION PAPER. GOOD LUCK! 1
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ACCT 352 Intermediate Financial Accounting 2 Question 1 ( 18 marks) Part A – 12 marks Juma Corp. is in the business of printing textbooks. Their last industrial strength printer has broken down, so Juma is on the search for a replacement. They are interested in leasing the RX – 3000, which is currently being sold for $600,000. The machine has a useful life of 10 years with no salvage value. Juma does not have this kind of cash, so they have approached two separate printer dealers for leasing quotes. They could also take a loan from the bank and buy the printer outright. In this case the bank would charge them 6% interest. Taylor Corp terms: Lease term: 6 years Annual Lease payment 70,000 due at the beginning of the year Implicit rate in the lease 7% known to Juma Guaranteed residual value 100,000 Executory costs 1,000 due at the beginning of the year (not included in the Lease payment ) Morris Corp. Lease term: 8 years Annual Lease payment 85,250 due at the beginning of the year Implicit rate in the lease 5% known to Juma Executory costs 1,000 due at the beginning of the year (not included in the Lease payment ) 2
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ACCT 352 Intermediate Financial Accounting 2 As part of the contract, Juma can purchase the printer from Morris at the end of the lease term for $30,000 which is 1/3 of its expected fair value of $90,000 after 8 years. Juma Corp. will lease the printer on January 1 st , 2009. Its year ends on June 30 th . Required: a) Is the lease offered by Taylor Corp operating lease or capital lease? Support your answer with calculations. Record the relevant entries on January 1 st and June 30 th , 2009 if Juma were to go with Taylor’s offer. (3 marks) b) Is the lease offered by Morris Corp operating lease or capital lease? Support your answer with calculations. Record the relevant entries on January 1 st and June 30 th , 2009 if Juma were to go with Morris’ offer. (6 marks) c) Suppose Juma goes with Morris’s offer. What are the journal entries on January 1 st and June 30 th , 2010 (3 marks) Part B – 6 Marks Lesee can structure their leases as either operating or capital to affect their financial statements. Some of the typical reporting goals of both parties are: a) A low Debt to equity ratio (or debt to assets if this makes it easier for you) b) Smooth earnings c) Highest possible income in the later years Required:
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