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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
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UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR STAGE II EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 102: INTERMEDIATE ACCOUNTING I
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE (15 MARKS)
a. Kikars Distributors purchase soft drinks from producers and then sells them to retailers. The
company began 2006 with merchandise inventory of Kshs 120,000 on hand. During the year,
additional merchandise was purchased on account at a cost of Kshs 600,000. Kikars Distributors
offer credit terms 2/10, n/30. All discounts were taken. The company uses the net method to
record purchase discount. All purchases were made F.O.B shipping point. Freight charges paid by
Kikars Distributors totaled Kshs 16,000. Merchandise with a net of discount cost of Kshs 20,000
was returned to suppliers for credit. Sales for the year on account totaled kshs 830,000. The cost
of the soft drinks sold was Kshs 550,000 and kshs 154,000 of inventory remained on hand at the
end of 2006.
Required:
Relevant journal entries to record the above transactions using periodic inventory system
(7 Marks)
Using illustrations, write short notes on the following accounting concepts
i). Separate entity concept
ii). Prudence concept
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iii). Substance over form
iv). Materiality (8 Marks)
QUESTION TWO (15 MARKS)
The following information relates to item P0A stocked by PANOD products ltd. for the month of April
2008
Date Receipts
(Units)
Issues
(units)
Unit cost
(Shs)
3 2,400 18
4 3,200
6 2,600 20
12 2,700
14 3,000 22
18 2,800 21
20 2,200
22 2,600 23
25 3,800
26 3,100 24
27 2,500 25
28 3,200 26
29 6,900
The closing balance for March 2008 was a batch of 3,000 units received at a unit price of sh 19
Required:
a. Stores records using LIFO system and Weighted Average system. (15 Marks)
QUESTION THREE (20 MARKS)
Kuona Mbele Company sells its products, offering 30 days credit to its customers. Uncollectible
amounts are estimated by a monthly charge to bad debts expenses equal to 2% of credit sales. At the
end of the year, the allowance for Uncollectible accounts is adjusted based on aging of accounts
receivables. The company began 2006 with the following balances in its accounts:
Accounts receivables 305,000
Allowance for Uncollectible accounts (25,500)
During 2007, sales on credit were Kshs 1,300,000, cash collection from customers were Kshs
1,250,000 and actual write offs of accounts were Kshs 25,000. An aging of accounts receivables at the
end of 2007 indicates a required allowance of Kshs 30,000
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Required:
b. Determine the balances in accounts receivables and allowances for Uncollectible accounts at the
end of 2007. (4Marks)
c. Prepare end year adjusting entries as well as closing entries to record actual write offs as well as
allowances for debts. (4Marks)
d. With the help of an illustration, differentiate between relevance and reliability as used in
accounting .
(3Marks)
a) What accounting principle or assumption is manifested in each situation below? explain
i). Prepayments are allocated equally to expense over the next twelve months
ii). Keith owns a car dealership, a restaurant and a service station. Different and independent
statements are prepared for each business.
iii). Inventories at X ltd. stores are valued at the lower of cost of market value
iv). A transaction involving a very small amount does not need to be separately reported in
the financial statements
v). The business entity is considered to be separate and apart from the owners for accounting
purposes. (5 Marks)
b) When should revenues and expenses be recognized in the financial statements? Explain at least
three criteria used before an item is recognized in the financial statements. (4 Marks)
QUESTION FOUR (20 MARKS)
a. Today. Com borrowed cash from Barclays Bank and assigned sh. 400,000 of accounts receivable
as collateral. BBK loaned them an amount equal to 75% of the receivables. The note requires that
interest at a rate of 24% be paid on outstanding note balance at the end of each month. No finance
fee was charged due to the high rate of interest. During January, sh. 197,000 was collected on
account and sh. 8000 of retuns and allowances were granted to customers. On 31st January,
Today.com remitted the cash collected on receivables plus interest due. During February, the
remainder of the accounts receivables assigned was collected except for sh. 2000 which was
written off as uncollectibles. On 28th February, Today.com remitted the balance of the note and
interest due to BBK.
Required, Show the journal entries necessary to record the above transactions. (10 Marks)
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b. ABC ltd. had the following balances at the beginning of 2008.
Accounts receivables sh. 400,000
Allowance for doubtful accounts sh. 20,000
During 2008, sh 45,000 of accounts receivables were considered uncollectible and no more effort to
collect them will be made. Total sales for the year were sh.1, 200,000. of which sh 200,000 were cash
sales. Total collections for the year were sh900, 000. Assuming that the company uses the credit sales
method to estimate bad debts expense and uses 4% of credit sales as its estimate of bad debts, provide
journal entries to record bad debts write offs and bad debt expense for 2008. (5 Marks)
c. Determine the final recorded value for land and buildings from the following information
Sh
Cash paid to the contractor 10,000,000
Tax on building materials 300,000
Cost of land 5000,000
Cost of destroying old building on land 200,000
Proceeds from sale of old building 50,000
Electricity used during construction 20,000
Interest on purchase of materials 10,000
Interest on construction 300,000
(5 Marks)
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