ACCT2015200920 - THE UNIVERSITY OF THE WEST INDIES CAVE...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

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

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

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

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

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

View Full DocumentRight Arrow Icon
Background image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: THE UNIVERSITY OF THE WEST INDIES CAVE HILL EXAMINATIONS DF APRILIMAY Eflflfi. CODE ANH NAME OF EUL‘RSE: ACCTEDIS — FINANCML sCCGUNTING II HATE ANT) TIME: DURATION: 1’. FIGURE INSTRUCTIONS TU CANDIDATES: This paper has '5 pages and 4 questions. This exam paper contains four questions. Question 1 is compulsory. Answer any two questions from questions 2 to 4. SECTION A Question 1 - Compulsory [3t] marks] a} Gordon Company has the following securities in its portfolio of trading equity securities on December 31, EGDT: Cost Fair 1y'allue soon shares of Milner Corp, Common $1551ODU $139JJEJD WEED shares of Eddy. Common 132 DUE! 19D DEC] $33? {112113 3329,6130 All of the securities had been purchased in EDD—f. In EDDIE, Gordon completed the following securities transactions: March 1 Sold 5,0130 shares of Milner Corp.r Common @ $31 less fees of $1,539. April 1 Bought soc shares or Yount Storesr Common a $45 plus fees oi $55G. The Gordon Company portfolio of trading equity securities appeared as follows on December 31, 2008: Cost Fair 1y'alue lflflflfl shares of Eddy. Common 3132,0139 $195,50fl EGO shares of Yount Stores. Common 2? 5512i 25,5130 $2 209,553 §221 E[illilii Instructions Prepare the general journal entries for Gordon Company for: i} the EDD? adjusting entry. {Emerita} ii) the sale oi the Milner Corp. stock. {3 marks] iii} the purchase of the Yount Stores' stock. {2 marks} is} the sees adjusting entry. {2 marks} Page 2 Question 1 lCont’d] p) Sands Corporation has the following capital structure at the beginning of the year: 6% Preferred stock. $5t} par value. 2fl.{it}tl shares authorized, 6,0131} shares issued and outstanding $ BIDDING Common stock, $10 par value. ec.ccc shares authorized, scope shares issued and outstanding 40c,ch Paid—in capital in excess of par 11031219 Total paid—in capital Etflflififl Pietained earnings Milflfli} Totai stoolthoit‘lersr ectuity $1 250.13% instructions ii Fiecord the following transactions which occurred consecutively {show all calculations}. 1. A total cash dividend of $9G.Eit‘lf] was dectared and payable to stockholders of record. Fieoord dividends payable on common and preferred stock in separate accounts. {3 marks} 2. A 143% common stock dividend was declared. The average market value of the common stock is $18 a share. Show your workings. (It marks} 3. Assume that net income forthe year was Etfiflflflfl {record the closing entry} and the board of directors appropriated $?D,Ufl{i of retained earnings for plant expansion. {4 marl-ts} iii Construct the stockholders equity section incorporating all the above information. {‘3' marks) oi On January 1, 21:19? Kiner Go. issued five—year bonds with a face value 13151101311966 and a stated interest rate of 12% payable semiannuain on July 1 and January 1. The bonds were sold to yield 1E}%. Present value table factors are: Present value of 1 for 5 periods at 10% £21392 Present vaiue of t for 5 periods at 12% .56243 Present value of 1 for 1D periods at 5% .51391 Present value of 1 for it] periods at 5% 55832 Present value of an ordinary annuity of 1 for 5 periods at 10% 3.?30?9 Present value of an ordinary annuity oft for 5 periods at 12% 3.501138 Present value of an ordinary annuity of1 for 1D periods at 5% 2.?21?3 Present value of an ordinary annuity of 1 for 1D periods at 5% rescue calculate the issue price of the bonds. {3 marks} TURN OVER Fags 3 SECTiON B Choose any TWO of the Foilowing Questions. I{S'iuestlon 2 |2Elrnari<e| a) Ramirez Corporation has Attilflflfli} shares of common stock outstanding throughout EDD? In additionr the corporation has spec, 20—year, T‘t’s bonds issued at per in EDGE. Each $1 ,DD'D bond is convertible into 2i] shares of common stock after GREENE. During the year EUUT, the corporation earned $EGD,DDU after deducting all expenses. The tax rate was Stilts. Instructions Compute the earnings per share for Edi}? {5 marks} b) Stiner Builders contracted to build a high-rise for $14,DGG,DDD. Construction began in EDD? and is expected to be completed in 2WD. Data for EDD? and 23GB are: EDD? 20133 Costs incurred to date $1,8fiflflflfl $5,20U,flfi0 Estimated costs to complete TEDQDDD 4.8EID,DUD Stine-r uses the percentage—ofwcompietion method. Instructions i} Calculate the gross profitthat should be reported for 200?. {2 marks] ii) Calculate the gross profitthat should be reported for 20GB. {2 marks] iii} Make the journal entry to record the revenue and gross profit for 2W8. {2 marks] c) In accounting for long—term construction contracts, the two methods commonly followed are percentage-oi-comptetion and completedcontrect. instructions ii Eirieil},f discuss how earnings on long—term construction contracts are recognized and computed under these two methods. {4 marl-ts} ii] Under what circumstances shouid one method he used over the other? {2 marks) iii} How are job costs and interim billings reflected on the baiance sheet underthe percentage rot—completion method and the completed—contract method“? {2 marks} TURN OVER Page 4 Question 3 |2o marks! a} Horton Company. as lessee. enters into a lease agreement on July1.-eet}e,tor equipment. The tollowing data are relevant to the lease agreement: 1. The term of the noncancelable lease is 4 years. with no renewal option. Payments of $422,639 are due on June 3D of each year. 2. The fair value at the equipment on July 1. 20GB is $1,4{lflflfll}. The equipment has an economic life of 6 years with no salvage value. 3. Horton depreciates similar machinery it owns on the sum-ot-the-years'-d1gits basis. 4. The lessee pays all executory costs. 5. Horton's incremental borrowing rate is with per year. The lessee is avvare that the lessor used an implicit rate of 8% in computing the lease payments {present value factor for 4 periods at sea, 3.31213; at their, 3.16986. Instructions 1') Indicate the type of lease Horton Company has entered into and what accounting treatment is applicable. {2 marks} ii} Prepare the journal entries on Horton's books that relate to the lease agreement tor the tollowing dates including a partial amortization schedule. 1. .July 1, EDGE. 2. December 31 . EGGS. 3. June 30. sees. a. December 31 , 2005}. {9 marl-ts} b} For each of the following items, indicate the type of accounting change and how each is recognized in the accounting records in the current year. i) Change from straight-line method of depreciation to sumvcf—the—years'digits ii} Change from the cash basis to accrual basis of accounting iii) Change from FIFO to LIFE} method for inventory valuation purposes iv) Change from presentation of statements of individual companies to presentation of consolidated statments v} Change due to tailure to record depreciation in a previous period vi) Change in the realizability of certain receivables {3 marks] TURN OVER Page 5 Question 3 tCont'dl c) Instructions For the three independent situations following1 discuss the proper accounting treatment. including any required disclosures, for each situation. Give the rationale for your answers. 1. In August, 2130? a worker was injured in the tactory in an accident partially the result of his own negligence. The worker has sued Flooney Co. for $aco,ccc. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $25U,DDU to Efiflflflflfl. {2 marks} A suit for breach ot contract aeetting damages of 5340016130 was filed by an author against Early Co. on October 4, EDIE—ii. Early‘s legal counsel belieyes that an unfavorable outcome is probable. a reasonable estimate of the award to the plaintitt is between EEGGHDG and $1,8flflflflfl. No amount within this range is a better estimate of potential damages than any other amount. {2 marks] Peete is involved in a pending court case. Paete's [anglers belieye it is probable that Peete will be awarded damages of $1.fiUD,flUU. {2 marks} TURN OVER Page 6 Question 4 [2D marks] a} On January 1,2003, Sauder Company purchased a building and machinery that havethe following useful lives, salvage value, and costs. Building, 25-year estimated useful life, $4,0Ufl.flfld cost, secccco salvage value Machinery, till-year estimated useful life, $SDD.DUU cost, no salvage value The building has been depreciated under the straight—line method through 2013?. in EDGE, the company decided to switch to the doub|e~deciining balance method of depreciation for the building. Sauder also decided to change the total useful life of the machinery to 5 years, with a salvage value of $25,{}Dt] at the end ofthat time. The machinery is depreciated using the straight—line method. instructions i] Prepare thejournal entry necessary to record the depreciation expense on the building in EGGS. {4 marks) ii} Compute depreciation expense on the machinery for EDGE. {2 merits] b} On May ‘I, WW, GipSUi‘i Corp. purchased $45D,UUU of 12% bonds, interest payable on January 1 and July 1, for $422,8flfl plus accrued interest. The bonds mature on January 1 , 2013. Amortization is recorded when interest is received by the straight—line method {by months and round to the nearest dollar]. [Assume bonds are available for sale.) Instructions i} Prepare the entry for May 1.20131 (2 marks} ii) The bonds are sold on August ‘ir 2131213 for $425fl0i} piue accrued interest. Prepare all entries required to properly record the sale. {4 mart-ts} c‘J An article in Dun's Fieview made the following comments: "Every other year, say, companies should print the notes in big type and the base figures in smaller ones.“ Instructions it Are notes considered as part of the financial statements and what basic purpose do they serve? {5 merits} ii} identify three common types of financial statement notes. {3 marks} END OF QUESTION PAPER "I"L _ 'r'r_:..__...'a.. ml“ .5". 't'lrnn- 1—..-l.'...- FA'I-I-I-I-rln Fan-In.- & {‘r'r‘ifl‘l: “ll-It'll?” I' ...
View Full Document

This note was uploaded on 11/12/2011 for the course ACCT 2015 taught by Professor Dr,moore during the Spring '10 term at University of the West Indies at Mona.

Page1 / 6

ACCT2015200920 - THE UNIVERSITY OF THE WEST INDIES CAVE...

This preview shows document pages 1 - 6. Sign up to view the full document.

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