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:2010
QUESTION ONE – (30 MARKS)
The following is the balance sheet of Nciru Breweries Company as at 31.1010.
Shs
Assets 116,122,002
Financed by
6%, preferred stock, Shs100 per value, callable at Shs102 per share, 200,000 shares authorized. Issued and fully paid shares 12,000,000
12,000,000 Shs5 par value authorized ordinary shares issued and fully paid shares 14,000,000
Additional paid in capital (share premium) Preferred stock 360,000 Ordinary shares 30,800,000 31,160,000 Retained earnings 58,962,002 Total 116,122,022
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Required:
(a) On the basis of the above information answer the following questions and show any necessary computations: (i) How many shares of preferred stock have been issued? (2 Marks) (ii) What is the total annual dividend required on the outstanding preferred stock. (2 Marks) (iii) How many shares of common stock have been issued? (2 Marks) (iv) What is the total amount of legal capital? (2 Marks) (v) Why do companies retain part of their earnings? Give three reasons. (6 Marks) (b) The company as at 31.10.10, issued bonus shares to existing shareholders where each existing share got 3 more extra shares shows the new position of equity section in the statement of the financial position of Nciru Breweries. (6 Marks)
(c) The Company as at 31.10.10 approved at cost 24,000,000 by way of ordinary shares at Shs40 per share, show by statement of financial position the new financial position of the Company. (10 Marks)
QUESTION TWO – (20 MARKS)
(a) Differentiate between the following: (i) Secured and unsecured bonds (ii) Callable and convertible bonds (iii) Provision and a revenue (each 2 Marks, total 6 Marks) (b) Max Ltd issued Shs10,000,000, 12% unsecured, 10year bonds, at cost of Shs240,000 for Shs10,400,000, on 30.6.2008. Company uses straight line method of interest amortization, and interest is paid annually.
Required (i) Journalize the issuance of bonds on 30.6.2008, at premium. (2 Marks) (ii) Prepare bonds interest amortization schedule for the first 5 years. (5 Marks) (iii) Prepare journal entries for interest expense and amortization of the bond issue costs, bond premium for year 30.6.2009 and 30.6.2010. (3 Marks) (iv) If Max Ltd retired bonds worth Shs2,000,000 on 1st July 2010, at 103%. Compute the gain or loss on this early extinguishment of the bonds. Show your workings. (4 Marks)
QUESTION THREE – (10 MARKS) Mega Ltd enters a lease agreement on 31st December 2006 for plant and machinery costing Shs9,492,000. The lessee (Works Ltd) requires an annual rent payment of Shs2,722,000,
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payable in advance for a period of four years. The economic useful life of plant and machineries is 4 years and there is no scrap value at the end of the period. Depreciation on plant and machinery is on straight-line basis. The accounting period of the leassor and the lessee ends on 31.23 each year.
Required:
(a) Charge to income statement of the lessee for year 2007, 2008, 2009 and 2010, using the actuarial method. (6 Marks) (b) Distinguish between an operating lease and capital lease. (4 Marks)
QUESTION FOUR – (10 MARKS)
The following items were selected from the accounting records of Miraa Company Ltd as at 30.11.10.
Shs
Notes payable to NBK 5,000,000 Income tax payable 400,000 Accruals expenses 600,000 Mortgage notes payables 7,500,000 Accruals interest on notes 50,000 Accounts payables 2,500,000 Potential liability in pending law suit 100,000 Other Information
1. Notes payable to NBK is due in 60 days. 2. Mortgage requires payments of 60,000/= per month. Amortization schedule indicates that by 2011, December, the mortgage balance will be Shs7,390,000. 3. Accrued interest on mortgage note payable is due 1st January 2011. 4. Miraa Ltd has been sued for Shs100,000 in a contract dispute. It has not been possible to reasonably estimate the possible loss.
Required: (a) sheet. (6 Marks) (b) Different between: (i) Contingency liability and estimated liability. (2 Marks) (ii) Current liability and long term liability. (2 Marks)
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