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ACCT2015201020 - THE UNIVERSITY OF THE WEST INDIES CAVE...

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Unformatted text preview: THE UNIVERSITY OF THE WEST INDIES CAVE HILL EXAMINATIDNS GP APRILiMAY lfllfl. CODE AND NAME [1F COURSE: ACCTJUIS . FINANCIAL ACCOUNTING II Da'l'EAND'I'lME: DUMTION: 1 HOURS INSTRUCTIONS TO {3.3LNDIDATES: This paper has ti pages and :t questions. This paper has two sections — Section A and Section 3. Question 1 in Section A is compuisory. Answer ANY TWO (2) Questions from Section E. SE ION A This question is co.ttt_t:tut‘soii'_trr and has 3 parts (Part A}, E} and C] [30 Merits} QUESTION 1 A] 1. In EGGS. the company changed its method of recognizing income from the completed— oontraot method to the peroentageoicompietion method. 2. At the end of EDGE, an audit revealed that the corporation's allowance for doubtful accounts was too iatge and should he reduced to 2%. When the audit was made in EUfl'r’, the allowance seemed appropriate. 3. Depreciation on a truck, acquired in EMS. was understated because the sewioe lite had been overestimated. The understatement had been made in order to Show higher net income in sees and 200?. 4. The company switched from a LJFD to a FIFE) inventory 1taluation method during the current year. 5. in the current yeah the company decides to change from expensing certain costs to capitalizing these costs. due to a change in the period henefitted. E. Durlng EDGE-l, a icng—tenn bond 1tiritt‘i a carrying vaiue of $3.5flflflflfl was retired at a cost of $4.1 DDflUfl. TURN OVER Thi- T1nivr-r-tit'u' nt' Ihr. West Fnrirn Page 2 Question 1A [cent‘d] ?. After negotiations with the IRS, income taxes for Eddie were established at season. They were originallyr estimated to be 523.550. E. In E‘flflfl, the oompeniir incurred interest expense of $29,0flfl on a Ell—veer bond issue. 9. In computing the depreciation in RUDE for equipment. an error was made 1w'hlch overstated income in that year WEDDD. The error was discovered in EDGE. to. in sees. the company changed its method of depreciating plant assets from the double declining balance method to the straight—line method. Required For each situation above. match the letter from the ioilowing list below {choosing a. b. c or d} which best descrthes the presentation of the item on the financier statements of Gordon Corporation for sees. a. Change in estimate b. Prior period adjustment {not due to change in principle] c. Retrospective type accounting change with note disciosura d. None of the above [1 [it marks] B] On June 21, Eflflfl Maggies F’ie Company and Pres—Ft—Lls Limited merged to form MaggF'ies Inc. A total of Btiflfloti shares were issued to complete the merger. The new corporation reports on a caiendar veer basis. On April 1. 201i]. the companyr issued an additional dildo-DD shares of stools for cash. All 1 scenes shares were outstanding on December 31. said. MaggPies Inc. also issued a seeds-cc of 20-year. 3% convenibie bonds at par on .Juiyr i. 2G1 ti. Each $1 .ece hood convens to so shares of common at any interest data. None of the bonds have been converted to date. MaggPiee Inc. is preparing its annual report for the fiscal year ending December 31, 2th ti. The annual report will show earnings per share figures based upon a reported after-tax net income oi $1 emcee. {The tax rate is 493’s]. Required Calculate the following for Efltt'i {cfearty show the number of shares and the earnings figures in each cefcofation}: ' a. Basic eamtngs per share [4 marks] b. Diluted earnings per share [El marks] TURN OVER "I'lte liniverstlv of Lhc West Induct- tTnuru- Code: Aflmfllfi EITH'IL 1' Page 3 . C] |L'iiyen the current economic climate. many companies may have concerns as to their tuture viability. In melting its assessments. when management is aware of material uncertainties about eyents or conditions that may cast doubt upon the entity's ability to continue as a going concern, management shall consider its plans tor dealing wit ' ‘ eyents. Required a. Briefly explain the 'gcing concern assumption'. [1 mark] b. State two conditions or eyents which may indicate substantial doubt as to the entity‘s ability to continue as a ‘gorng concern‘. [2 marks] c. Brietly state the iniorrnation reouirements to be disclosed when a company's [5 marital financial statements are not prepared on a going concern basis. SECTIQN B Answer Any TWO {2) Questions. ouesrlorr 2 - [2n Marks] Forbes Company on January t. Edda. enters into a tiyevyear non-cancelabie lease. with tour ylng an estimated usetul life of ti] years and renewal options of one year each. tor equipment he prion oi the lease oi $3.UGD.UGD. Forbes's a fair yelue to the lessor. Holt Corp. at the ince incremental borrowing rate is Bars. Forbes uses the straight-line method to depreciate its assets. The lease contains the following proylslons: 1. Rental payments oi $219.tllt}l.l including 319132“) [or property taxes. payable at the beginning of each six-month period. 2. a termination penalty assuring renewal of the lease for a period ot tour years atter expiration of the initial lease term. 3. An option allowing the lessor to extend the lease one year beyond the last renewal exercised by the lessee. oit Corp. writ realize $1 Dfi.tlt2ltt from selling the asset 4. r-‘t guarantee by Forbes Company that H the actual residual yaiue is expected to be $50 .tthZIlZl. at the expiration of the lease. Howeyer. TURN DVEH Ffit .4 Question 2 {cont’d} Required s. indicate the type of lease that would he reported in the books of Forces Company and state the criteria for so doing. [3 merits] in. 1lit-'hat should be considered the lease term“? [1 mark] c. What are the minimum lease payments? [5 merits] d. 1|ifll‘hat is the present value of the minimum lease payments? [P‘v' factor for annuity due of 2d semi-annual payments at Eds annual rate, 14.13391: av factor for amount due in El} Interest periods at 3% annual rate. .45E39.i {Hound to nearest dollar.) [3 merits] a. 1Irfli‘hat joumal entries would Forbes record during the first year of the lease? {include an amortization schedule through irtros and round to the nearest dollar.) to marks} GUESTIDN 3 — [2t] mat-its] This questlon contains 2 parts [Part A and E] A] Lopez Company began operations in Eflflfi. Since then. it has reported the following gains and losses for its investments in trading securities on the income statement: EDGE zoo? sods Gains {losses} from sale of trading securities 3 15.0% ${2D.GDG} 1514.020 Unrealized holding losses on valuation of trading securities {25.flflfl} - reopen} Unrealized holding gain on valuation of trading securities - ‘l [Llilfli] - At January 1.33%. Lopez owned the following trading securities: Cost AGH Common {15.0% shares] $45flfl-llfl DEL Preferred {2.0m shares] 210.0% Pratt Convertible bonds (1flfl bonds} 1 15.l]fit] During Ell-DB. the following events occurred: 1 . Sold 5,flfll] shares of AGH tor $1Tflflflfl. 2. Acquired loco shares of Norton Common for also per share. Brokerage commissions totaled $1.0m. TURN OVER The Universe}- of the West Indies Course Code: Aime} 5 2mm" .I'.. I£1tuestien 3 {eent‘d} At 1331MB. the fair yaiues ter Lepez‘s trading securities were: AGH Cemmen, $23 per share DEL Preferred, $1113 per share Pratt Bends. $1.[i2t} per bend Norton Carr-men. $42 per share Required a. Prepare a seheduie I.irhich shows the balance in the Securities Fair Value Adjustment {Trading} at December 31. areas [after the adjusting entry fer 26133 is made}. [3 merits] in. Prepare a schedule which shows the aggregate cast and fair yaiues tar Lepez's trading securities pertielie at IEISHGQ. [3 marks] a. Prepare the necessary adjusting entry based used your analysls In {b} sleeve. [3 marks] 3] Gempare and contrast the fair yaiue and equrty methods of aeeeunting fer Inyestments ||"| stecits bath on the date of acquisition and subsequenl te aequisitien. [5 marks] TURN OVER Page 0 QUESTIUIN 4 .. 120 Marks] This question contains 2 parts (Part A] and 3]} 0] Bronwin |Corporation has the following capital structure at the beginning of 2000: 0% Preferred stock. $25 par value. 20.000 shares authonzed. 0.000 shares issued and outstanding 5 150.000 Common stock. $5 par value. 00.000 shares authorized. 40.000 shares issued and outstanding 200.000 Pflidrln caprtal in excess of par 55 000 Total paid-in capital 405.000 Retained earnings 220 000 Total stockholders equity £025 000 The following transactions occurred consecutiver dunng 2000: 1. a total cash dividend ot 000.000 was declared and payable to stockholders oi record. Ftecorcl diwdends payable on common and preferred stock ”1 separate accounts. 2. A 10% common stock dividend was declared. The average mantet value of the common stock is $10 a share. 3. Assume that net income for the year was 51 50.000 {record the closing entrv} and the board of directors appropriated S?0.000 ct retained earnings tor plant Etbtpal'latfln. a} Prepare iournal entnes to record the above transactions. [0 marks] b] Prepare the stockholders equity section lot Bronwin Corporation. incorporating all the iniormatton above. [0 marks] 31 ‘r’AS 10 — Events After the Reportrng Period makes reference to ‘adjustr'ng events after the reporting period'and “non—adJUsting events after the reporting period. Explain the meaning of the term “subsequent event {post-eateries sheet event} in accounting. naming two maior types of subsequent events and indicate how each would be reported and disclosed. [0 marks] END OF QUESTION PAPER The L'nivcrsttv ofthc West Indies Course Code: ACCTIIJIS 2010.?" L. — ...
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