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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:2009
1
UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR STAGE I EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 200: INTERMEDIATE ACCOUNTING II (SATURDAY)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Attempt ALL questions
QUESTION ONE (20 MARKS)
a) State and explain the various classifications of leases (6 Marks)
b) Identify and describe the three levels of likelihood of the occurrence of the future event related
to accounting for loss contingencies. (9 Marks)
c) Describe the two characteristics of the corporate form of organization that affect accounting for
stockholders equity. (5 Marks)
QUESTION TWO (20 MARKS)
a) On January 1, 2007, Sanyo Ltd issued Ksh. 2,000,000 of 7% convertible loan stock. The
holders of this stock may choose to convert the stock into ordinary shares on January 1, 2011,
2012 or 2013. The number of ordinary shares into which the stock will be converted is as
follows:
Date of conversion Number of shares issued
January 1, 2011 400 shares per Ksh. 1,000 of loan stock
January 1, 2012 420 shares per Ksh. 1,000 of loan stock
January 1, 2013 440 shares per Ksh. 1,000 of loan stock
The company’s profit after tax for the year to September 30, 2008 was Ksh. 2,200,000. The
comparative figure for the year to September 30, 2007 was Ksh. 2,400,000. The company pays tax at
30%.
2
On October 1, 2006, the company’s issued share capital consisted of 1.5 million 12% preference shares
of Ksh. 1 each, and 5 million ordinary shares of Ksh. 0.2 (20 cents) each. On April 1, 2008, the
company issued a further 500,000 ordinary shares at full Market price.
The preference dividend was paid in full in both the year to September 30, 2007 and the year to
September 30, 2008.
Required:
i) Calculate basic EPS and diluted EPS for the year to September 30, 2007 ( 8 Marks)
ii) Calculate basic EPS and diluted EPS for the year to September 30, 2008 (12 Marks)
(Hind: Effective dilution is the maximum possible issue from loan stock)
QUESTION THREE (15 MARKS)
At the beginning of 2004 Lessor Bank Limited entered into a non cancelable lease agreement with
Lessee Telecommunications Company in which the Bank purchased and transferred computer
equipment to Lessee Telecommunication. The equipment had a fair value of £2486 useful life of three
years and no residual value at the end of the third year. The term of the lease covered three years.
Lessee Telecommunication has an excellent credit risk and agreed to assume all ownership risks
associated with the equipment such as maintenance, rates and insurance.
Required:
a) What type of a lease is described above both to the lessee and the leaser? (2 Marks)
b) Determine the annual lease payment if the bank desired a 10% rate of return on its investment
(3 Marks)
c) Using effective interest method account for the Lesser’s receivable and the Lessee’s payable to
recognize the interest expense/revenue and the receipt of lease payment at the end of each accounting
period. (10 Marks)
QUESTION FOUR (15 MARKS)
A Corporation issued £40,000 serial bond at the beginning of the year 2006. The stated rate on the
bond issue was 10% payable annually. The bonds mature at the rate of £20,000 per year beginning
December 31 2007. Assume that each serial was sold to yield 12%.
Required:
i) Calculate the issue price of each series and the total bond issue. (5 Marks)
ii) Prepare a schedule of interest and book value. (5 Marks)
iii) Prepare the journal entries to record the interest and revenue for the first year (5 Marks)
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