2017 Sample Exam Paper 1.pdf

Required answer the following independent questions

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Required: Answer the following independent questions and show computations supporting your answers. 1. Assume that the company uses the FIFO method. The value of the ending inventory at 31 December is \$__________. (2 Marks) 2. Assume that the company uses the Average Cost method. The value of the ending inventory on 31 December is \$__________. (2 Mark) 3. Assume that the company uses the LIFO method. The value of the ending inventory on 31 December is \$__________. (2 Marks) 4. Assume that the company uses the FIFO method. The value of the cost of goods sold at 31 December is \$__________. (2 Marks) Solution: 1. FIFO: Ending inventory \$237 45 units @\$4.80 = 216 5 units @\$4.20 = 21 50 units \$237 2. Average Cost: Ending inventory \$222 \$666 / 150 = \$4.44 per unit x 50 units = \$222 3. LIFO: Ending Inventory \$214 15 units @\$4.00 = \$ 60 35 units @\$4.40 = 154 50 units \$214 4. FIFO: Cost of goods sold \$429 15 units @\$4.00 = \$ 60 60 units @\$4.40 = 264

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25 units @\$4.20 = 105 100 units \$ 429 Question 4 ABC Corp issues \$1000,000 face value of five year bond, dated 1 January 2015, and the current market interest rate is 7%. The sales proceeds are \$958,998. The bonds pay 6% interest annually on 31 December. (10 marks) a. What is the interest payment on the bonds each year? (2 Marks) 1000000*6% = \$60,000 b. what amount of interest expense on the bonds would be reported in 2015, 2016 and 2017 using the effective interest method? (6 Marks) Discount = 1000,000- 958998 = \$41,002 Under the effective interest rate method, interest expense for 2015 = 958998*7% = 67,129 The bond’s carrying amount at 31 December 2015= \$958,998 + \$7129 = \$966,127 Under the effective interest rate method, interest expense for 2016 = 966127*7% = \$67,628 The bond’s carrying amount at 31 December 2016= \$966,127 + \$7628 = \$973,755 Under the effective interest rate method, interest expense for 2017 = 973755*7% = \$68,162 c. What amount of interest expense on the bonds would be reported under the straight line method of amortizing the discount? (2 Marks) Under the straight line method the discount is evenly amortized over the life of the bonds. So the annual interest expense under the straight line method would be (60,000+41002/5) = \$68200.4
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