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Hbc2116:Intermediate Accounting Ii Question Paper
Hbc2116:Intermediate Accounting Ii
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2011
QUESTION ONE (30 MARKS)
(a) Beba Ltd has been offered credit by a dealer under the following terms 8/10, net 30. The company took goods worth Sh1,000,000. It then settled the credit at the end of 30 days. Determine the cost of the credit to Beba Ltd. (2 Marks) (b) If Beba Ltd did not have cash at present and decided to borrow at 10% p.a. what would you advise the company i.e borrow the Sh1,000,000 at 10% or to take the trade credit 8/10, net 30. (4 Marks) (c) A bond carrying a coupon rate of interest of 8% is sold to yield 10%, was the bond sold at a discount or at a premium? Explain. (3 Marks) (d) Kina Ltd offers Shs5,000,000 5 yeard 7% Bond. Interest is paid annually. Bond issue costs Shs124,000. (i) Assume yields of 6% and 8%. Determine the proceeds of the bonds. (6 Marks) (ii) Show the journal entries in the books of Kina Ltd to record the above issues at 6% and 8%. (4 Marks) (iii)Prepare interest amortization premium/discount table/schedule using straightline method for 5 years, if the bond is to be yield at 6%. (5 Marks) (iv) Journal entries to record interest, bond issue costs, discount/premium amortization for the 5 years, if the bond is to yield at 6%. (6 Marks)
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QUESTION TWO (15 MARKS)
(a) State two criteria that must be met for a lease to qualify as a capital (finance lease). (2 Marks) (b) Highlight two differences and two similarities between operating lease and capital lease. (4 Marks) (c) Nene Ltd, the lessee entered into a lease agreement dated 1st January year 1, whose details are as follows Lease term is 5 years and is non cancellable. An asset of equipment is being leased At the commencement of the lease the annual rent value is Shs600,000 and there is no residual value on the part of equipment leased The lease has no renewal options The market rate of interest is 15%. Depreciation is to be charged on straightline basis leased equipment has an economic useful life of 5 years. Required: (i) Journal entries to recognize the finance lease in the books of the Lessee and in the books of lessor. (2 Marks) (ii) Prepare a lease amortization schedule for Nene Ltd. (7 Marks) (iii)Lease charges to income statement of Nene Ltd for year 1 to 5. (4 Marks)
QUESTION THREE (15 MARKS)
The statement of financial position of Mutuati Ltd in summary as on 30.6.2011 was as follows:
Assets Shs
Plant and Machineries 2,000,000 Equipment and fittings 1,000,000 Motor vehicles 1,200,000 Bank 1,500,000 5,700,000 Less Liabilities Trade creditors 500,000 Bank loan, 3 years 550,000_ Net Assets 4,650,000
Financed by 50,000 ordinary shares, Shs20 par value, issued and fully paid 1,000,000 100,000, Shs20 par value, 8%
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redeemable preference shares 2,000,000 Ordinary share premium 50,000 Profit and loss account 1,600,000 4,650,000
Other transactions
(i) Preference shares were due for redemption at a premium of 10%, on 1.7.2011. (ii) It was decided and resolved at an AGM of the company held on 20.7.2011 that funds for redemption of preference shares be sourced out of (a) Profit and loss account subject to leaving a balance of Sh200,000 (b) Issue of additional ordinary shares at a premium of Sh10 to sufficiently meet the remaining balance of the money required. On 31st July 2011, fresh issue of additional ordinary shares had been concluded and there was sufficient funds to meet the balance of money required, though at a cost 72,000 which directors decided to write it off against the ordinary share premium account.
Required:
(a) Journal entries in respect of the above transactions. (5 Marks) (b) Ledger accounts to record the above in (a) (5 Marks) (c) Summary of the financial position of the company as at 31.7.011, after redemption of 100,000 preference shares. (5 Marks)
QUESTION FOUR (10 MARKS)
(a) Differentiate between: (i) Third party liabilities and product warranty liabilities (2 Marks) (ii) Secured bonds and bonds with warrants attached (2 Marks) (iii)Callable bonds an convertible bonds (2 Marks) (b) Highlight four distinct features between shares and bonds. (4 Marks)
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