sample_AFM101_final_exam_F2005_solution

sample_AFM101_final_exam_F2005_solution - University of...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Term: Fall Year: 2005 Student Name Solution UW Student ID Number Course Abbreviation and Number AFM 101 Course Title Core Concepts of Accounting Information Section(s) 001, 002, 003, 004 Instructor Duane Kennedy Date of Exam Wednesday, December 14, 2005 Time Period Start time: 4:00 pm End time: 6:30 pm Duration of Exam 2.5 hours Number of Exam Pages 25 (including this cover sheet) Exam Type Special Materials Additional Materials Allowed Cordless calculators may be used. The calculator must be standalone with no communication or data storage features. Both the examination paper and multiple choice card must submitted. Marking Scheme: Question Score Question Score 1 (14 marks) 6 (8 marks) 2 (10 marks) 7 (8 marks) 3 (8 marks) 8 (12 marks) 4 (4 marks) 9 (8 marks) 5 (8 marks) 10 (35 marks) Total score: 115 marks University of Waterloo Final Examination
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Question 1 (14 Marks) Required: Answer the following independent questions. A) King Limited issued $1,000,000, 10 percent, 10 year bonds dated July 1, 2005. Interest is paid semi-annually on June 30 and December 31. The issue price was $1,135,903 based on a market interest rate of 8 percent. The company uses the effective interest rate method of amortization. Complete the following table: Date Interest Payment Interest Expense Amortization of Discount or Premium Book Value July 1, 2005 --- --- --- $1,135,903 Dec. 31, 2005 $50,000 $45,436.12 $4,563.88 $1,131,339.12 Interest Payment = $1,000,000 * 10% / 2 = $50,000 Interest Expense = $1,135,903 * 4% = $45,436.12 Amortization of Premium = $50,000 -45,436.12 = $4,563.88 Book Value = $1,135,903 - 4,563.88 = $1,131,339.12 B) 1Columbia Corporation issued 3,000, 10 year bonds at 103 on November 1, 2005, which results in an effective interest rate of 8%. The bonds have a $1,000 face value and a 9% stated interest rate. Interest is payable annually on October 31. The company uses the straight-line amortization method. Record the payment of interest on October 31, 2006. Issue price = 3,000 * $1,000 * 1.03% = $3,090,000 Total premium = $3,090,000 – 3,000,000 = $90,000 Amortization = $90,000 / 10 years = $9,000 / year Interest Expense $261,000 Premium on Bonds Payable 9,000 Cash ($3,000,000 * 9%) $270,000 AFM 101 Page 2 of 25
Background image of page 2
C) Weber Company issued $5,000,000, 8 percent, 10 year bonds dated May 1, 2005. Interest is paid semi-annually on October 31 and April 30. The market rate of interest was 6 percent. Record the sale of the bonds on May 1, 2005. Present value of principal = $5,000,000 * PV(n=20, i=3%) = $5,000,000 * 0.554 = $2,771,000 Present value of interest = $5,000,000 * 4% * PV(annuity, n=20, i=3%) = $200,000 * 14.877 = $2,975,400 Issue price = $2,771,000 + 2,975,400 = $5,745,400 Cash $5,745,400 Premium on Bonds Payable $745,400 Bonds Payable $5,000,000 Note: if a financial calculator or formulas are used: Present value of principal $2,768,378.77 Present value of interest $2,975,494.97 Issue price $5,743,873.74 AFM 101 Page 3 of 25
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Question 2 (10 Marks) The records of Shorter Company reflected the following for the month of February:
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/30/2010 for the course MATH 235/237 taught by Professor Wilkie during the Spring '10 term at Waterloo.

Page1 / 27

sample_AFM101_final_exam_F2005_solution - University of...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online