Solutions Sample Exam - Solutions Sample Exam Question 1 2012 Premium Inventory(6,000 x $0.90 Cash(or Accounts Payable 5,400 5,400 Cash(or Accounts

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.