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FINANCIAL ACCOUNTING 4 EXAMINATION
Time: 4 Hours
Show all calculations in an orderly manner in order to obtain part marks.
Round all calculations to the nearest dollar.
Narratives for journal entries are not required unless specifically asked for.
Assume a December 31 fiscal year end unless specifically stated otherwise.
Assume all amounts are material unless directed otherwise.
for each of the following unrelated items. Answer
of these items
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.
2 marks each
Use the following information to answer parts (a) and (b).
On July 1, 2000, a public company issued 10-year convertible bonds with a face value of $5,000,000 and
an 8% stated rate of interest, paid annually. The bonds were issued for proceeds of $4,679,117 to provide
an effective yield of 9%. Similar bonds issued by the company without a conversion feature would have
required a yield of 10% to attract investors, and would have been issued for proceeds of $4,385,543.
What premium or discount should be recorded by the company on July 1, 2000, if the company uses
split accounting to determine the premium or discount?
1) $320,883 discount
2) $320,883 premium
3) $614,457 discount
4) $614,457 premium
Three years after the issuance date, $2,500,000 (face value) of the bonds are converted. Which of the
following adjustments would be made to the conversion rights account to record this conversion?
1) $146,787 debit
2) $160,442 debit
3) $293,574 debit
4) $307,229 debit