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Intermediate Accounting I Question Paper
Intermediate Accounting I
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2008
COURSE CODE: ACCT 211
COURSE TITLE: INTERMEDIATE ACCOUNTING
STREAM: Y2S1
INSTRUCTIONS:
i. The paper contains FOUR questions
ii. Answer ALL the questions
iii. All the questions carry EQUAL marks
iv. Marks are allocated at the end of each question
QUESTION ONE
a) Define the term bank reconciliation statement and give four reasons for its
preparation (5 marks)
b) List and briefly explain any three causes of the differences between cashbook
and bank statement balances. (3 marks)
c) Financial statements are prepared with underlying basics assumptions. State and
briefly explain the three fundamental assumptions recognized as underlying the
preparation of financial statements. (9 marks)
d) Identify and briefly explain three main considerations that should guide an
accountant in selecting an appropriate accounting policy for his organization.
(3 marks)
e) Define ‘Goodwill’ and state how it is accounted for in the financial statements
(3 marks)
(Total 25 marks)
QUESTION TWO
At 1 October 2003 the fixed assets of Kimutait Ltd. comprised the following:
Original Accumulated
Cost depreciation Net book value
Shs. Shs. Shs.
Freehold land and buildings 550 000 550 000
Plant and equipment 875 400 338 200 537 200
Vehicles 647 000 211 000 436 000
Furniture and fittings 125 000 32 000 93 000
The straight-line rates of depreciation based on cost, used to that date were 10% per
annum for plant and equipment: 20% per annum for vehicles, and 12 ½ % per annum for
furniture and fittings. It is the company’s policy to make a full year’s charge on new
items of fixed assets in the year of purchase.
The following additional information is relevant to the calculation of depreciation for the
year to 30 September 2004:
(i) Freehold land and buildings were professionally re-valued during the year at
Sh975 000.
(ii) An item of equipment bought in November 1996 for Sh105 000 is now
recognized to have a useful life of at least 20 years.
(iii) A vehicle bought in June 1998 for Sh85 000 was traded in at a value of Sh44 000
in part exchange for a new vehicle costing Sh140 000
(iv) Included with the furniture and fittings is an item which originally cost Sh15 000
and which is already fully depreciated and not expected to last for very much
longer.
Required
(a) Prepare a schedule of fixed assets movements and balances suitable for inclusion
in the company’s published accounts for the year to 30 September 2004. Show
clearly the amount to be charged against the year’s profits and the balances to be
shown in the balance sheet.
(b) Explain why:
(i) It is considered necessary to provide for depreciation ;
(ii) Some business enterprises do not provide depreciation of freehold land
and buildings.
(Total 25 marks)
QUESTION THREE
The Hawthorne Manufacturing company sells its product’s offering 30 days’ credit to its customers.
Uncollectible amounts are estimated by accruing a monthly charge to bad debt expense
equal to 2% of credit sales. At the end of the year, the allowance for uncollectible
accounts is adjusted based on an aging of accounts receivable. The company began 2001
with the following balances in its accounts.
Accounts receivable $305,000
Allowance for uncollectible accounts (25,500)
During 2001, sales on credit were $1,300,000 cash collections from customers were
$1,250,000 and actual write offs of accounts were $25,000. An aging of accounts
receivable at the end of 2001 indicates a required allowance of $30,000
Required
1. Determine the balance in accounts receivable and allowance for uncollectible
accounts at the end of 2001.
2. Determine bad debt expenses for 2001
3. Prepare journal entries for the monthly accrual of bad debts (in summary form),
the write off of receivables, and the year end adjusting entry for bad debts.
The Hollywood Lumber Company obtains financing from the Midwest finance company
by factoring (or discounting) its receivables. During June 2000, the company transferred
$1,000,000 of accounts receivable to Midwest. The transfer was made with recourse. The
buyer, Midwest finance, charges a fee equal to 3% of receivables transferred.
In addition, on June 20, 2000, Hollywood discounted a note receivable. The note which
originated on March 31, 2000, requires the payment of $150,000 plus interest at 8% on
March 31, 2001. Midwest’s discount rate is 105 and the transfer was made with recourse.
The company’s fiscal year end is December 31.
Required
1. Prepare journal entries for Hollywood Lumber for the transfer of accounts
receivable and the note receivable discounted on June 30. Assume that the
required criteria are met and the transfers are accounted for as sales.
2. Repeat requirement 1, assuming that the sale criteria are not met and the transfers
are accounted for as loans.
(Total Marks: 25 Marks)
QUESTION FOUR
a) The sunshine manufacturing company sells its products, offering 30 days’ credit
to its customers. Uncollectible amounts are estimated by accruing a monthly charge to
bad debt expense equal 2% of credit sales. At the end of the year, the allowance for
uncollectible accounts is adjusted based on an ageing of accounts receivable. The
company began 2006 with the following balances in its accounts:
Accounts receivable Kshs. 305,000
Allowance for uncollectible accounts (25,000)
During 2001, sales on credit were Kshs. 1,300,000 cash collections from customers were
Kshs. 1,200,000 and actual write-offs of accounts were Kshs. 25,000. An ageing of the
receivable at the end of 2001 indicates a required allowance of Kshs. 30,000.
Required:
1. Determine the balances in the accounts receivable and allowance for uncollectible
accounts at the end of 2006, (11 marks)
2. Determine bad debts expense for 2006 (1 mark)
3. Prepare journal entries for the monthly accrual of bad debts (in summary form),
the write-offs of receivable, and the year-end adjusting entry for bad debts
(3 marks)
b) The Grand Coalition Company began 2007 with inventory of 10 million units of
its principal product. These units cost Kshs. 5 each. The following inventory
transactions occurred during the first six months of 2007.
Date Transaction
Feb 15 Purchased, on account, 5 million units at a cost of Kshs. 6.50 each
Mar. 20 Sold, on account, 8 million units at a selling price of Kshs. 12 each
Apr. 30 Purchased, on account, 5 million units at a cost of Kshs. 7 each.
On 30th June 2007, 12 million units were on hand.
Required:
1. Prepare journal entries to record the above transactions. The company uses
period inventory system (3 Marks)
2. Prepare the required journal entry on 30th June 2007, applying any of the
following inventory systems
i) Average
ii) LIFO
iii) FIFO
(7 Marks)
(Total Marks: 25 marks)
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