Intermediate Accounting Ii Question Paper
Intermediate Accounting Ii
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 200 : INTERMEDIATE ACCOUNTING II (SUNDAY)
DATE: AUGUST 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
a) What is a liability? [ 2 Marks]
b) Discuss the main elements of a liability [ 4 Marks]
c) Consider a company that has reported an income of sh 10,500,000 computed without subtracting
either the bonus or corporation taxes. The bonus is to be based on income after taxes but before
deducting bonuses. The corporation tax rate is 30% and the bonus payable is 10%.
Required;
i.) Calculate the bonus and tax payable [6 Marks]
ii.) Show the double entry in respect of bonus and income taxes payable.
[4 Marks]
iii.) How are the terms probable, reasonably possible and remote related to
contingent liabilities? [4 Marks]
QUESTION TWO
a) Chalinze limited has reported a pretax financial income of sh 12,000,000 in each of the years
2007, 2008 and 2009. The company is subject to a 30% tax rate and has the following differences
between pre tax financial income and taxable income.
1. An installment sale of sh 1,440,000 in 2007 is reported for tax purposes over an 18 month
period at a constant amount per month beginning January 1st 2008. The entire sale is not
recognized for book purposes in 2007.
2
2. Premium paid for life insurance carried by the company on key officers is sh 600,000 in
2008 and 2009. This is not deductible for tax purposes but is expensed for book purposes.
Required;
i.) Show journal entries to record income taxes for Chalinze limited for the years 2007,
2008 and 2009. ( 9 Marks)
ii.) Calculate the effective tax rate for years 2007,2008 and 2008 ( 3 Marks)
b) Differentiate between temporary and permanent differences and give 3 examples of each.
(8 Marks)
QUESTION THREE
A company issues a 2.5 year bond with a face value of 200,000 and a coupon rate of 10%.
Interest is paid and compounded semi-annually on June 30 and December 31 of each year.
At the time of issuance, the Market rate is 12%.
Required;
a) What is the amount of the proceeds from the issuance of this bond? (5 Marks)
b) Prepare the appropriate amortization schedule to write of the discount or premium (5 Marks)
c) Write out ALL journal entries related to this bond (i.e. from issuance until maturity). (5 Marks)
QUESTION FOUR
a) Differentiate between operating leases and capital leases [ 3 Marks]
b) State the main advantages of buy and lease back as a strategy of raising finance by companies.
[3 Marks]
c) Lessor rents a machine at a cost of sh 600,000, to Lessee for 3 years. The salvage value at that
time is sh 100,000, which is unguaranteed. The interest rate, known to both parties, is 10% and
the lease meets all the requirements needed to qualify as a capital lease.
Required
i.) Calculate the annual rental [3 Marks]
ii.) Show the amortisation schedule for the lease [6 Marks]
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