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CGA-CANADA FINANCIAL ACCOUNTING 4 EXAMINATION March 2004 Marks Time: 4 Hours Notes: 1. All calculations must be shown in an orderly manner to obtain part marks. 2. Round all calculations to the nearest dollar. 3. Narratives for journal entries are not required unless specifically asked for. 4. Assume a December 31 fiscal year-end unless specifically stated otherwise. 5. Assume all amounts are material unless directed otherwise. 6. Assume all companies are public companies unless otherwise noted. 7. Assume no companies use differential reporting unless otherwise noted. 30 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if (1) is the best answer for item (a), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. No account will be taken of any explanations you offer. Note: 2 marks each Note: Use the following information to answer parts (a) and (b). In early 2003, KLN Company issued 20-year convertible bonds with a face value of $1,000,000 and a stated interest rate of 8% paid annually. The bonds were issued for proceeds of $1,105,941 to provide an effective interest rate of 7%. If the bonds did not have a conversion feature, in order to attract investors the company would have had to issue the bonds for proceeds of $908,714, with an effective interest rate of 9%. a. Using the split accounting, incremental approach, at what amount should the conversion rights for KLN’s 20-year convertible bonds be recorded? 1) $ 91,286 2) $105,941 3) $197,227 4) $228,513 b. KLN Company uses the straight-line method to amortize the discount on its bonds. Ten years after the bonds were issued, $500,000 (face value) of the bonds are converted using the carrying value approach. The journal entry to record the issuance of common shares on conversion of the bonds would include which of the following? 1) $26,485 debit to premium on bonds payable 2) $52,970 debit to premium on bonds payable 3) $22,821 credit to discount on bonds payable 4) $45,643 credit to discount on bonds payable Continued. .. EFA4M04 ©CGA-Canada, 2004 Page 1 of 9
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c. Preparers of financial information have objectives to meet through financial statement presentation. Which of the following is not considered one of the key objectives of preparers regarding financial statement presentation? 1) Adequate disclosure 2) Income tax planning 3) Income optimization 4) Stewardship assessment d. Which of the following is permitted for qualifying enterprises under the differential reporting provisions of the CICA Handbook ? 1) Using the equity method of accounting for portfolio investments
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This note was uploaded on 05/08/2010 for the course BUSINESS AIT 707 taught by Professor Raminrezaeinia during the Spring '09 term at Seneca.

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