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Caa 102: Intermediate Accounting I Question Paper
Caa 102: Intermediate Accounting I
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
FIRST YEAR STAGE III EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 102: INTERMEDIATE ACCOUNTING I
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer all questions
QUESTION ONE
a)
i) What is the conceptual framework? Why is a conceptual framework necessary in financial
accounting? (3 Marks)
ii) Describe the impact that constraints have on reporting accounting information (4 Marks)
iii) Assume that revenue accounts of Upendo shop have the following balances, after adjustments at
the end of the year
Shs
Revenue from sales 280,000
Rental revenue 27,000
Interest revenue 5,000
Required:-
Close the revenue accounts to income summary (3 Marks)
b) Define receivables and identify the different types of receivables (3 Marks)
c) Wetu Ltd lends kshs 10,000 to Ukweli ltd in exchange for kshs 10,000, 3 year note bearing
interest at 10% annually. The market rate or interest for a note or similar risk is also 10%.
2
Required
i) Record the receipt of the note by wetu ltd (1 Mark)
ii) Recognize the interest earned each year (1 Mark)
QUESTION TWO
a) i)Identify major classification of inventory (3 marks)
ii) distinguish between perpetual and periodic inventory system (2 marks)
b) Upendo Company uses a perpetual inventory system. For April, when the company sold 700
units, the following information is available:
Unit’s unit cost total cost
April 1 inventory 250 $10 $ 2,500
April 15 purchase 400 12 4,800
April 23 purchase 350 13 4,550
1000 $11,850
Compute the April 30 inventory and the April cost of goods sold using the average cost method.
(10 Marks)
c) Presented below is a list of items that may or may not be reported as inventory in a company’s
December 31 balance sheet
1. Goods out on consignment at another’s company’s store.
2. Goods sold on an installment basis.
3. Goods purchased f.o.b shipping points that are in transit at December 31
4. Goods purchased f.o.b destination that are in transit at December 31.
5. Goods sold to another company, for which our company has signed an agreement to repurchase
at a set price that covers all costs related to the inventory.
6. Goods sold where large returns are predictable.
7. Goods sold f.o.b shipping points that are in transit at December 31.
8. Freight charges on goods purchased.
9. Factory labour costs incurred on goods still unsold.
10. Interest cost incurred for inventories that are routinely manufactured. ( 10 Marks)
3
QUESTION THREE
a) Techno options have been in the business of selling mobile handsets and accessories for the
last three years. Although it is not the industry’s norm to sale on credit, Laura, the proprietor
of the business ventured into credit sales from the month of December, 2007 –otherwise, how
do you do good business at such hard economic times like this? She reasoned then.
As at the end of 2008, the following information was available concerning the business
activities and selected account balances:
Ksh
Sales revenue (all amounts are on credit) 900,000
Sales returns and allowances 8,000
Accounts receivable –January 1, 2008 140,000
Accounts written off as uncollectible during 2008 9,600
Cash payments received from customers during 2008 924,000
Allowance for uncollectible accounts, January 1, 2008 (credit) 8,000
Laura has estimated the uncollectible accounts at Ksh. 8,400 based on an aging schedule.
On learning that you are a B.com student at KCA University, she has enlisted your services to
help her:
i) Determine the balance of the accounts receivable account on December 31, 2008
(6 Marks)
ii) Determine bad debts expense for 2008 (4 Marks)
iii) Calculate the net realizable value of accounts receivable at year end. Explain why
write offs have no effect on the net realizable value of receivables (3 Marks)
b) At the beginning of 2008, Aristotle Company acquired a mine for $970,000. Of this amount,
$100,000 was ascribed to the land value and the remaining portion to the minerals in the mine.
Surveys conducted by geologists have indicated that approximately 12,000,000 units of the ore
appear to be in the mine. Aristotle incurred $ 170,000 of development costs associated with
this mine prior to any extraction of minerals and estimates that it will require $ 40,000 to
prepare the land for an alternative use when all the mineral has been removed. During 1998. 2,
500,000 units of ore were extracted and 2,100,000 of these units were sold.
4
Instructions
Compute :-
i) The total amount of depletion for 2008
ii) The amount that is charged as an expense for 2008 for the cost of the minerals sold during
2008.
Stanley coal mines recently purchased an additional crane for digging purposes. Pertinent data
concerning the purchase of the crane are.
Cost of crane kshs 500,000
Estimated useful life 5 yrs
Estimated salvage value kshs 50,000
Productive life in hours 30,000hrs
Required
Prepare a depreciation schedule using double- decline balance method (5 Marks)
QUESTION FOUR
a) Describe the characteristics of intangible assets (4 Marks)
b) Describe the accounting procedures for research and development costs. (4 Marks)
c) Harcott co. incurred Shs 170,000 in legal cost on January 1 2008 to successful defend a patent.
The patent has a useful life of 17 years and is amortized on straight line basis.
Required
i) Journal entries to record the legal fees and amortization at the end of each year ( 4 Marks)
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