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Acct 221: Intermediate Accounting Ii Question Paper
Acct 221: Intermediate Accounting Ii
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2011
COURSE CODE: ACCT 221
COURSE TITLE: INTERMIDIATE ACCOUNTING II
STREAM: Y2S2
INSTRUCTIONS:
1. Answer question ONE and any other TWO questions
2. Be neat and precise
QUESTION ONE
a) The Rolman Corporation is authorized to issue 1,000 shares of Sh.5.00
Per value common stock. In the first year 2009, the company has the following stock
transaction:
Jan. 10th issued 400,000 shares aof stock at shs.8.00 per share.
July1: issued 100,000 shares of stock for land. The land had an asking
Price of Sh. 900,000. The stock is currently selling ofn Nairobi Stock Exchange at
Sh.8.25 per share.
Sept. 1: purchased 10,000 shares of the treasury stock at Sh. 10.00 per share.
Required:
i. Journalize the transitions. (5 marks)
ii. Prepare balance sheet extract, equity section assuming the company had retained
earnings of Sh. 200,000 as at December 31st 2009. (9 marks)
b) Explain the purpose of conceptual framework in Accounting for liabilities of a firm.
(5 marks)
c) i) Describe briefly the accounting treatment of the three types of contingent liabilities.
(6 marks)
ii) Cook ± Rite Company sold Sh. 140,000 of Kitchen appliances during August under a
six- month warranty. The cost to repair defects under the warranty is estimated at
6% of the sales price on September 11th 2010 a customer required a Sh.200 part
replacement, plus Sh.90 of labour under the warranty.
Required:
i. Estimated warranty expense of August 31st 2010 (2 marks)
ii. Journal entry for September 11th 2010 warranty work. (2 marks)
d) Kabarak enterprises bought a machine at a cost of Sh. 12,000,000 which is being
depreciated on a straight line basis over a 10 years estimated useful life with no residual
value early in the sixth year management, having had experience with the machine,
determines that erhe total useful life will be 12 years (zero residual value)
Required:
i. Compute and record depreciation expense for year six. (4 marks)
ii. How would you describe the charge and affect the income for the period. (2 marks)
QUESTION TWO
Royland limited offered 500,000 ordinary shares of Sh. 10 at Sh. 12.50 payable as under:
Sh.2.50 on application
Sh.5.00 on allotment (including premium)
Sh.2.50 on first call
Sh. 2.50 on second call
Applications were received for 600,000 shares. Applications for 100,000 shares were rejected.
Allotment money due was received; first call was made after one month and second call after
two months. All moneys due on first and second call were received except for 10,000 shares.
These were forfeited after three months and then re-issued for Sh.7.00 each fully paid.
Required:
Show the necessary entries in the Bank Account and ledger of the Company. (20 marks)
QUESTION THREE
a) Distinguish between Finance lease and operating lease (3 marks)
b) Majimoto Ltd. Entered into a lease agreement on 1st January 2005 for an industrial
establishment, the lease period is 5 years and annual rent is Sh. 600,000. Repairs and
maintenance are to be paid for by the lessee. Assume that the cost of borrowing funds is
15%. This lease is a finance lease and is considered ³non cancellable´ depreciation is to
be charged on straight line basis.
Required:
i. Journal entries in the lessee¶s books at the inception of the lessee. (3 marks)
ii. The charges to the profit and loss account of the lessee over the lease period by suing the
actuarial method. (7 marks)
iii. Lessors account in the lessee¶s books. (7 marks)
QUESTION FOUR
Syntax software Ltd has successfully developed a new spreadsheet program. To produce and
market the programme, the company needed Kshs. 2 million of additional financing. On
December 31st 2010, Syntax borrowed money as follows:
i. Syntax issued Sh. 500,000 11%, 10 year convertible bonds. The bond sold at face value
and pay semi-annual interest on January 1st and July 1st. Each Sh. 1000 bond is
convertible into 30 shares of Syntax¶s Sh.20 per value common stock.
ii. Syntax issued sh. 1 million, 10% bonds for Shs. 885,301. Interest is payable
semi-annually on January 1st and July 1. Syntax uses the straight line method of
amortization.
iii. Syntax also issued a sh. 500,000, 12%, 15-year mortgage not payable. The terms
provided for semi annual installment payments of Sh. 36,324 on June 30th and
December 31.
Required:
For the 10 year, 10% bonds:
i. Journalize the issuance of the bonds on January 1, 2010 (2 marks)
ii. Prepare a bond discount amortization schedule for the first six interest periods
(10 marks)
iii. Prepare the journal entries for interest expense and amortization of bond discount in 2010
(8 marks)
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