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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 (25 MARKS)
a) Following information was extracted from the books of Nene Ltd as at 31.12.10
Shs Shs
Stocks 500,000 Buildings 1,600,000 Debtors 1,900,000 Purchases 2,800,000 Salaries and wages 850,000 Sales 6,200,000 Fixtures and fittings 250,000 Discounts allowed 75,000 Plant and machinery 1,400,000 Rates and licenses 56,000 Advertising 104,000 Insurance 38,000 General expenses 72,000 Creditors 418,000 Cash 24,000 Bank overdraft 186,000 Preference dividends in arrears 40,000 100,000, Shs 20 par value, ordinary
2
Shares 2,000,000 Rent income 460,000 Profit and loss 1.1.10 500,000 Ordinary shares premium 200,000 General reserve 100,000 20,000, 10%, Shs 20 par value, Redeemable preference shares 400,000 10% bonds payable, 5 year 2,000,000 Land 2,800,000 12,529,000 12,529,000
Other transactions;
1. Stock as at 31.12.10 Shs 600,000. 2. Company depreciation policy on assets is as follows on cost. Buildings 2% Plant and machinery 10% Fixtures and fittings 12 1 2 % 3. Included in the account of sales is an amount of Shs. 1,000,000 on account of valued added tax and no adjustments had been made in the books of account 4. 20% corporate tax is charged on profits. Overdraft interest of Shs 15,000 has too accrued. 5. Shs 75,000 and shs.50,000 have accrued as director fees and audit fees respectively. 6. On 31.12.10, the company held an extra-ordinary general meeting(EGM) and the following resolutions were made i. 15% dividends be paid on all ordinary shares after two weeks. ii. Preference dividends after two weeks be paid. iii. On 31.12.10, all the cumulative preference shares be given an additional or participating dividends of Shs 1 per share after two weeks. iv. All company workers be given 5% bonus on after tax profits on 2.1.11 for new year celebrations. v. The company acquires motor vehicles, Shs 2,000,000 and equipment Shs 500,000, from Kega enterprises, by issue of 50,000 ordinary shares, Shs 20 par value to Kega. The company shares have a current market price of Shs 60 per share. 7. The 10%, 5 years, bonds were issued on and dated 1.7.10, interest payable semi-annually on 31.12.10 interest had not yet been paid. Bonds were issues at par.
3
Required
(a) Itemize liabilities of Nene Ltd as at 31.12.10 (5 Marks) (b) Profit and loss Account statement of comprehensive incomes for the year ended 31.12.10. (10 marks) (c) Balance sheet (statement of financial position) as at 31.12.10. (10 Marks)
QUESTION TWO (15 MARKS)
a) On 2.1.10, Nyaga Ltd borrowed Shs 2,000,000, one year, notes payable on 2.1.11 at 16%, interest. He incurred 2% appraisal fees and paid Shs 25,000 application fees, all deducted from the loan facility. Nyaga Ltd closes their books on 30th September.
Required
Journal entries to record the above liability in the books of Nyaga Ltd on 2.1.10, on 30.9.10 and on 2.1.11. (5Marks)
b) In the year ended 31.12.10 KPLC, Nakuru office made shs.500 million from sales of electricity to Nakuru county customers. Included in the sales account was 20% collection on account of power generating companies 12% collection on account of value added tax (KRA) 5% collection on account of rural electrification programme. 3% collection on account of electricity regulatory authority 10% collection on account of foreign financiers.
Required
i. Determine the Sales Account in KPLC – Nakuru books of Account. (4 Marks) ii. Determine the amount payable to each of the KPLC-Nakuru office third parties as at 31.12.11. (5 Marks) iii. Record the above transactions in the books of KPLC – Nakuru. (3 Marks)
QUESTION THREE (20 MARKS)
(a) Crandle Corporation issued, bonds, face amount Shs 5,000,000, 10%, 5 year on 1.7.06. The bonds were dated 1.7.06, with an annual interest payment on 30.6 and were to yield 8%. Bond issue costs amounted to Shs 400,000.
4
Required
i. Compute the amount received from the bonds (3 Marks) ii. Prepare the discount/premium amortisation schedule using straight-line method. (5 Marks) iii. Prepare journal entries to record issuance of the bonds, annual interest expenses, discount/premium amortisation, and deferment of bond issue costs. (6 Marks) (b) Mwende Ltd issued on 1st December 2006 its 13%, Shs 2,000,000 face amount bonds for Shs. 2,200,000 plus accrued interest. Interest is payable on 1.2. and 1.8. Disregard bond issue costs on 31.12.08. Carrying amount bonds inclusive of the unamortised premium was Shs 2,100,000. On 1.7.09, Mwende Ltd extinguished the bonds at 98, plus accrued interest. Mwende Ltd uses straight line method for amortisation of bond premium for it differs insignificantly with the interest method.
Required
Compute the gains or losses on Mwende Ltd early retirement or extinguishment of debt. (10 Marks)
QUESTION FOUR (10 MARKS)
Mali Ltd makes a lease agreement on 1.1.07, with Chumma Ltd for a Machine costing shs 9,492,000. The lease agreement requires Mali Ltd to pay annual rent of Shs 2,722,000, payable in advance for a period of 4 years. The economic life of the machine is 4 years and no scrap value, after 4 year period use. Depreciation on machine is on straight-line basis and period of accounting both for Mali ltd and Chumma Ltd ends on 31.12
Required
i. Journal entries to record the inception of the lease. (3 Marks) ii. Lease amortisation schedule for the 4 year period, 2007 to 2010, using the actuarial methods (interest method). (7 Marks)
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