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Hbc 2104: Intermediate Accounting I Question Paper
Hbc 2104: Intermediate Accounting I
Course:Bachelor Of Commerce
Institution: Dedan Kimathi University Of Technology question papers
Exam Year:2014
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DEDAN KIMATHI UNIVERSITY OF TECHNOLOGY
UNIVERSITY EXAMINATION 2013/2014
EXAMINATION FOR THE DEGREE IN BACHELOR OF COMMERCE
HBC 2104: INTERMEDIATE ACCOUNTING I
DATE: 21ST APRIL 2014 TIME: 8.30AM – 10.30AM
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
(a) Listed below are eight technical accounting terms emphasized inventory
accounting:
? LCM rule ? Gross profit method
? Cost ratio ? Retail inventory method
? FIFO method ? Inventory shrinkage
? LIFO method ? Consistency
Each of the following statements may or not describe one of these technical
terms. Indicate the accounting term described by the statement, or answer
“None” if the statement does not correctly describe any of the terms.
i. Loss due to missing or damaged units which is recorded in a separate adjusting entry
in a perpetual inventory system.
ii. A method of inventory valuation in which inventory is reported at retail prices.
iii. A method of estimating the cost of the ending inventory based on the assumption of
constant gross profit rate.
iv. A method of inventory valuation that assumes the ending inventory consists of
goods acquired in the earlier purchases.
v. The ratio of cost to selling price
vi. A method of pricing in which inventory is valued at the lower of original cost or
replacement cost.
vii. Accounting standards that require use of the same method of inventory pricing from
year to year, with full disclosure of the effects of any change in method. (4 marks)
(b) On July 14th, 2009 Endarasha United paid Kshs 600,000 to acquire a fully equipped
factory. The purchase involves the following assets and information.
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Asset
Appraisal Value
Salvage Value
Useful Life
Depreciation Method
Kshs
Kshs
Land
160,000
-
-
None
Land Improvements
80,000
0
10 years
Straight line
Building
320,000
100,000
10 years
Double Declining
Machinery
240,000
20,000
10,000 Units
Units of Production
Total
800,000
Required:
i. Allocate the total cost Kshs 600,000 purchases cost among the Separate assets.
(3 marks)
ii. Compute the 2009 (Six months) and 2010 depreciation expense for each asset, and compute the company’s total depreciation expenses for both years. (6 marks)
iii. On the last day of the Calendar year 2011, Endarasha United discarded machinery that had been on its books for five years. The machinery’s original cost was Kshs 12,000 (estimated life in five years) and its salvage value was Kshs 2,000. No depreciation had been recoded for the fifth year when the disposal occurred. Journalize the fifth year depreciation (straight line method) and the assets disposal.
(3 marks)
iv. At the beginning of the year 2011, Endarasha United purchased a Patent for Kshs 100,000 cash. The Company estimated patent’s useful life to be 10 years. Journalize the patents acquisition and its amortization for the year 2011. (4 marks)
v. Late in the year 2011, Endarasha United acquired Ore deposit for Kshs 600,000 cash. It added roads and built mine shafts for an additional cost of Kshs 80,000. Salvage value of the mine is estimated to be Kshs 20,000. The company estimated 330,000 tons of available ore. In year 2011, Endarasha mined and sold 10,000 tons of ore. Journalize the mine’s acquisition and its first year depletion. (2 marks)
vi. On the first day of 2011, Endarasha United exchanged machinery that was acquired on July 14th 2009 and Kshs 5,000 Cash for Machinery with a Kshs 210,000 market value. Journalize the exchange of these assets assuming the exchange lacked Commercial substance. (2 marks)
(c)Wangige Corporation is authorized to issue 1,000,000 shares of kshs 5 par value common stock. In its first year, 2002, the company has the stock transactions.
- Jan 10th Issued 400,000 shares of stock at Kshs 8 per share.
- July 1st Issued 100,000 shares of stock for land. The land had an asking price of kshs 900,000. The stock is currently selling on a national exchange at Kshs 8.25 per share.
- Sept, 1 Purchased 10,000 shares of common stock for the treasury at Kshs 9 per share.
- Dec. 1 Sold 4,000 shares of the treasury stock at Kshs 10 per share.
Required: Prepare the stockbrokers’ equity section assuming the company had retained earnings of Kshs 200,000 at December 31st, 2002. (6 marks) QUESTION TWO The following details relate to Nyeri Traders Limited which uses a perpetual inventory system for its product’s. Its beginning inventory, purchases, and sales during calendar year 2009 was as follows:
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Date
Activity
Units acquired at cost
Units sold at retail
Unit Inventory
Jan 1st
Beginning Inventory
400 units @Kshs 14
400 units
Jan 15th
Sale
200 units @ Kshs 30
200 units
March 10
Purchase
200 units @Kshs 15
400 units
April 1st
Sale
200 units @ Kshs 30
200 units
May 9th
Purchases
300 units @Kshs 16
500 units
Sep 22nd
Purchase
250 units @Kshs 20
750 units
Nov 1st
Sale
300 units@ Kshs 35
450 units
Nov 28th
Purchases
100 units @ Kshs 21
550 units
Total
1250
700
Addition data for specific identification method Jan 15 Sale= 200 units @ Kshs 14.2, April 1 Sale =200 units @ Kshs 15 and Nov 1st Sale= 200 units @ Kshs 14 and 100 units @ Kshs 20. Required:
i. Calculate the cost of goods available for sale (2 marks)
ii. Apply the four different methods of inventory costing (FIFO, Weighted Average and Specific identification) to calculate ending inventory and cost of goods sold under each method. (16 marks)
iii. Compute gross profit earned by the company for each of the four costing method in part (ii) above. Also report the inventory amount reported on the balance sheet for each of the four methods. (2 marks)
QUESTION THREE (a)
i) The intangible assets section of Othaya development Company at 31st December, 2007 is presented below.
Patent (shs 60,000 costs less Kshs 6,000 amortization) Shs 54,000 Franchise (Shs 36,000 cost less Kshs 14,400 amortization) Shs 21,000 Total Shs 75,000 The Patent was acquired in January 2002 and had a useful life of 10 years. The franchise was acquired in January 1999 and also has a useful life of 10 years. The following cash transaction may have affected intangible assets during 2003. Jan 2. Paid Shs 27,000 legal costs to successfully defend the patent against infringement by another company. Jan-June Developed a new product, incurring Kshs 140,000 in research and developed costs. A patent was granted for the product on July 1. Its useful is equal to its legal life. September 1 Paid Shs 60,000 to Scan group limited to appear in commercials advertising Othaya Development products. The commercials will air in September and October.
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October 1. Acquired a franchise for Kshs 40,000. The franchise has a useful life of five years. Required: Prepare journal entries to record the transactions above. (14 Marks) (b) Biggers company accepted credit cards in payment for Kshs 3,450 of merchandise sold during March 2010. The credit card company charged Biggers a 3 percent service fee. The credit card company paid Biggers as soon as it received the invoices. Required:
i) Prepare the general journal entry to record the merchandise sale. (4 marks)
ii) Based on this information alone, what is the amount of net income earned during the month of March? (2 marks)
QUESTION FOUR (a) Presented below are two independent situations
i. Wangu Incorporated acquired 5% of the 400,000 shares common stocks of Kauzi limited at total cost of Kshs 6 per share on May 18, 2002. On August 30th, Kauzi declared and paid a Kshs 75,000 dividend. On December 31st Kauzi reported net income of Kshs 244,000 for the year.
ii. Riara limited obtained significant influence over Meru North by buying 40% of Meru North 60,000 outstanding shares of common stock at a cost of Kshs 12 per share on January 1st 2002. On April 15, Meru North declared and paid a cash dividend of Kshs 45,000. On December 31st Meru North reported net income of Kshs 120,000 for the year.
Prepare all necessary entries for 2002 for (i) Wangu Incorporated and (ii) Riara Limited. (10 marks) (b) Nanyuki Company had accounts receivable of Kshs 97,500 at March 31st 2010. Analysis of the accounts shows the following: Months of sale Balance, March 31st 2010 Kshs March 65,000 February 17,600 January 8,500 Prior to January 6,400 97,500 Credit terms are 2/10, n/30. At March, Allowance for doubtful Accounts has a credit balance of Kshs 1,600 prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company’s estimate of bad debts is as follows: Age of Accounts Estimated Percentage Uncollectible 1-30 days 2.0 % 31-60 days 5.0 % 61-90 days 30.0% Over 90 days 50.0% Required:
i) Determine the total estimated uncollectible (5marks)
ii) Prepare the adjusting entry at March 31st 2010 to record bad debts expense.
(5marks)
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QUESTION FIVE (a) Argue a case for the regulation of the accounting profession. (10 marks) (b) Determine the amounts that should be disclosed in the financial statements in the following cases.
i. Sheridan Construction Company purchased a new bulldozer that had a Kshs 2,600,000 list price. The seller agreed to allow a 4% cash discount in exchange for immediate payment. The bulldozer was delivered FOB shipping point at a cost of Kshs 12,000. Sheridan hired new employee to operate the bulldozer for an annual salary of Kshs 360,000. The employee was trained to operate the dozer for a one time training fee of Kshs 8,000. The cost of the company theft insurance policy increased by Kshs 3,000 per year as a result of adding the dozer to the policy. The dozer had a five year useful life and an expected salvage value of Kshs 260,000.
(2 marks)
ii. Betty Company limited purchased a building and a plot of land for Kshs 2,400,000 cash. A real estate appraiser was called to determine the fair market value of each asset as follows: building Kshs 2,700,000 and land Kshs 900,000. (2 marks)
iii. On January 1, 2003 Maral limited purchased an asset that cost Kshs 180,000. The assets had a useful life five years and Kshs 30,000 salvage value. Maral uses straight-line depreciation. On January 1, 2005, it incurred a Kshs 12,000 cost related to the asset. Assume three different scenarios:
? The Kshs 12,000 cost was incurred to repair damage resulting from accident. (2 marks)
? The Kshs 12,000 cost improved the operating capacity of the equipment. The useful life and salvage value remain unchanged. (2 marks)
? The Kshs 12,000 cost extended the useful life of the asset by one year. The salvage value remained unchanged. (2 marks)
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