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Caa 200 Intermediate Accounting Ii Question Paper
Caa 200 Intermediate Accounting Ii
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
1
UNIVERSITY EXAMINATIONS: 2011/2012
YEAR II EXAMINATION FOR THE BACHELOR OF COMMERCE
CAA 200 INTERMEDIATE ACCOUNTING II
(DAY)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer All the Questions
QUESTION ONE
a) on January 1 of year 1 a corporation granted to its employees stock options to purchase 1,000
shares of common stock with a par value of $5 when the market value of the common stock was
$15; the option price was $15 per share; the fair market value of the stock options was $6,000; the
stock options are exercisable on December 31 of year 3; the stock options expire on December 31
of year 4; during year 4 900 stock options were exercised and 100 stock options lapsed. Required;
show the necessary double entry to record the above transactions. (3 marks)
b) Explain the accounting treatment of current contingent liabilities. (3 marks)
c) How are the terms probable, reasonably possible and remote related to contingent liabilities?
( 3 marks)
d) Consider a company that has reported an income of sh 10,400,000 computed without subtracting
either the bonus or corporation taxes. The bonus is to be based on income after taxes but before
deducting bonuses. The corporation tax rate is 30% and the bonus payable is 12%.
Required;
i) Calculate the bonus and tax payable (4 marks)
ii) Show the double entry in respect of bonus and income taxes payable. (2 marks)
d) Company ABC Limited has the following information regarding its income for years 2009 and
2010;
2
2009 2010
Accounting Taxable Accounting Taxable
Income Income Income Income
Regular income sh m 200 200 200 200
Temporary difference sh m 20 0 0 20
Total sh m 220 200 200 220
Tax rates 30% 30%
Assume the temporary difference is due to revenue earned in 2009 but not collected until 2010.
Show the journal entries for taxation for the years 2009 and 2010. (5 marks)
QUESTION TWO
a) Differentiate between temporary and permanent differences and give 4 examples of each.
( 8 marks)
b) Uchumi limited has reported a pretax financial income of sh 6,000,000 in 2008, sh 7,200,000
in 2009 and sh 8,400,000 in 2010. The company is subject to a 30% tax rate and has the
following differences between pre tax financial income and taxable income.
1. An installment sale of sh 360,000 in 2008 is reported for tax purposes over an 18 month
period at a constant amount per month beginning January 1st 2009. The entire sale is not
recognized for book purposes in 2008.
2. Premium paid for life insurance carried by the company on key officers is sh 150,000 in
2009 and 2010. This is not deductible for tax purposes but is expensed for book purposes.
Required;
a) Show journal entries to record income taxes for Uchumi limited for the years 2008,
2009 and 2010. ( 9 marks)
b) Calculate the effective tax rate for years 2008, 2009 and 2010 ( 3 marks)
QUESTION THREE
Ruwenzori limited issued a 3-year bond with a face value of sh 200,000 and a coupon rate of 10%.
Interest is paid and compounded semi-annually on June 30 and December 31 of each year. At the time
of issuance, the market rate is 12%.
3
Required;
i) What is the amount of the proceeds from the issuance of this bond? (5 marks)
ii) Prepare the appropriate amortization schedule to write of the discount or premium
(5 marks)
iii) Write out ALL journal entries related to this bond (i.e. from issuance until maturity).
(5 marks)
QUESTION FOUR
ABC limited leased equipment on 1 January 2011. The lease provided for four annual lease rentals of
ksh 10 million payable in advance. The equipment has a useful life of four years and a nil residual
value. The lessee incurred sh 0.9 million in legal cost to complete the lease agreement. The cash selling
price of the equipment was sh 32.1 million. The interest rate implicit was 17% per annum.
Required;
i. Prepare the finance lease obligation amortization schedule (10 marks)
ii. Prepare journal entries to record the transaction for the year ended 31 December 2011.
(5 marks)
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