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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:2012
QUESTION ONE (30 MARKS)
(i) The following information was extracted from the books of Kaithe Ltd as at 31.12.11
Shs. Shs.
Stocks 1.1.11 500,000 Buildings 1,600,000 Debtors 1,900,000 Purchases 2,800,000 Salaries 850,000 Sales 6,200,000 Furnitures 250,000 Discounts allowed 75,000 Plant& machinery 1,400,000 Rates and licences 56,000 Advertising 104,000 Insurance 38,000 General expenses 72,000 Creditors 418,000 Miscelleneious incomes 165,000 Cash 24,000 Bank 214,000 Share capital 100,000 ordinary shares at shs. 20 per value 2,000,000 Rent income 500,000 Profit and loss bal. 1.1.10 500,000 General revenues 100,000 Land 2,000,000 10%, preference shares 1,000,000
Shs. 20 per value
10% bonds payable interest payable annually 1,000,000 11,883,000 11,883,000
Other transactions
1. Stocks as at 31.12.11 shs. 600,000 2. Depreciation on assets to be provided as follows on straightline basis basis.
Buildings 2% Plants & machinery 10% Furnitures 122
3. Included in the Account of sales is an amount of shs. 1,000,000, valued added Tax and no adjustments has been made in the books of accounts as at 31.12.11 4. Interest on bonds payable has to be accrued. 5. Shs. 75,000 and shs. 50,000 have accrued as directors fees and audit fees respectively. 30% corporate tax be provided on profits for the year. 6. On 30th September, 2011 the company lost its defence in a lawsuit and was ordered by High Court to pay shs. 300,000 in settlement. 1 No appeal was made within the time stipulated as at 31.12.11. No adjustments had been made in the books. Interest at 12% p.a on judgment amount has also accrued. Lawyers fees amounting to shs. 36,000 on account of the same have too not been paid nor adjustments made in the books. 7. As at 31.12.11 warranty claims against the company amounted to shs. 45,000. No adjustments in the books had been made neither settlement of the same. 8. On 31.12.11, directors held a board meeting and proposed that (i) 12% dividends be paid on all ordinary shares (ii) Preference dividends be paid (iii) Shs. 100,000 be transferred to the General Reserves.
Required:
(a) Value of Kaithe Ltd current liabilities ( 4 Marks)
(b) Value of Kaithe Ltd longterm liabilities ( 2 Marks)
Trading, profit and loss account for the year ended 31.12.11 ( 15 Marks)
Balance sheet at 31.12.11 ( 9 Marks)
QUESTION TWO – 10 MARKS
On 2.1.11, Meru Auto enterprises sh.2,000,000, one year, notes payable at 16% p.a. The firm incurred 2% appraisal fees and paid shs. 25,000 application fees, all deducted from the loan facility. Meru auto closes its books of account on 31st October.
Required:
(a) Journal entries to record the above liabilities in the books of Meru Auto on (i) Issuance of the notes payable (4 Marks) (ii) Retirement of the notes payable (3 Marks) ( 3 Marks) (b) Explain the differences between share and bonds
QUESTION THREE ( 20 MARKS)
Meru star Ltd issued shs. 5,000,000 face amount, 10%, 5 years, Bonds on 1.7.08. Interest on Bonds is payable annually and the Bonds were issued to yield at 8% . Bonds issue cost amounted to shs. 400,000. The bonds were dated 1.7.08.
Required:
(a) Determine the price of the Bonds ( 2 Marks) (b) Were the Bonds issued at a discount or at a premium and how much? ( 2 Marks) (c) Journal entries to record the issuance of bonds in the books of Meru star Ltd. ( 3 Marks) (d) Prepare a discount/premium amortisation schedule for the five year bond term using the straightline method. ( 5 Marks) (e) Journal entries record interest payments discount/premium amortisation, and bond issue cost for the five years of the bond liability. ( 5 Marks) (f) If Meru star extinguished/retired the Bonds on 2.7.12 for shs. 4,080,000 compute the gains or losses made on the early retirement of the bonds. ( 3 Marks)
QUESTION FOUR (10 MARKS)
Job makes a lease agreement on 1.1.08 with Meru Transporters Ltd for vehicles costing shs. 9,492,000. Job deals with tours and offers tour services to customers from many foreign countries visiting the eastern part of Kenya and Mt. Kenya region.
The lease agreement requires Job to pay an annual rent of shs. 2,722,000 payable in advance for a period of 4 years. The economic life of the vehicles is estimated to be 4 years and with no scrap value. Depreciation of the vehicles is on straightline basis and period of accounting for both Job and Meru transporters Ltd ends on 31st December.
Required:
(a) Lease amortisation schedule for the four years, using the actuarial ( Interest method) ( 6 Marks) (b) Explain the merits and demerits of leasing finance) compared to outright purchase of Assets. ( 4 Marks)
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