Solutions Sample Exam
Question 1:
2012
Premium Inventory
(6,000 x $0.90)
........................................................
5,400
Cash (or Accounts Payable)
.........................................................
5,400
Cash (or Accounts Receivable) (200,000 x $3.50)
..................................
700,000
Sales
.............................................................................................
700,000
Premium Expense
....................................................................................
4,050
Premium Inventory
......................................................................
4,050
45,000 ÷ 10 = 4,500 × $0.90 = $4,050
Premium Expense
....................................................................................
6,750
Estimated Liability for Premiums
................................................
6,750
200,000 × 60% = 120,000 coupons
120,000 – 45,000 redeemed = 75,000 ÷ 10 = 7,500 to be redeemed in 2013
7,500 × $0.90 = $6,750
Note total expense for year = 120,000 ÷10 = 12,000 x $0.90 = $10,800 ($4,050 + $6,750)
2013
Premium Inventory (8,000 x $0.90)
.........................................................
7,200
Cash (or Accounts Payable)
.........................................................
7,200
Cash (or Accounts Receivable) (300,000 x $3.75)
..................................
1,125,000
Sales
.............................................................................................
1,125,000
Estimated Liability for Premiums (balance from 2012)
7,500 x $0.90
.....
6,750
Premium Expense
1,500 x $0.90
...............................................................
1,350
Premium Inventory
........................................................................
8,100
90,000 ÷ 10 = 9,000 x $0.90 = $8,100
Premium Expense
.......................................................................................
14,850
Estimated Liability for Premiums
...................................................
14,850
300,000 x 60% = 180,000
180,000 – 15,000 redeemed = 165,000 ÷ 10 = 16,500 to be redeemed in 2014
16,500 x $0.90 = $14,850
Note total expense for year = 180,000 ÷10 = 18,000 x $0.90 = $16,200 ($1,350 + $14,850)
Question 2:
Retained Earnings
....................................................................................
240,000
Dividends Payable, Preferred
.......................................................
110,000
Dividends Payable, Common
.......................................................
130,000
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Calculations:
Preferred
Common
Total
Arrears—5,000 × $6 × 2
$
60,000
$
60,000
Current to pfd—5,000 × $6
30,000
30,000
Common—$1,150,000 × 6%
$69,000
69,000
Participating 4%*
20,000
61,000
81,000
$110,000
$130,000
$240,000
*$500,000 x 4% = $20,000 to preferred; balance to common
Question 3:
a.
Note that IFRS requires the use of the residual method.

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- Winter '11
- JaniceCharko
- Accounting, Balance Sheet, Cash Flow Statement, Income Statement, ........., Generally Accepted Accounting Principles
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