Accounting For Liabilities And Equities-Sit In Test(Feb 2012) Question Paper

Accounting For Liabilities And Equities-Sit In Test(Feb 2012)

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
BAC201:ACCOUNTING FOR LIABILITIES AND EQUITIES-SIT IN TEST(Feb 2012)
Time allowed 1hr15 mins
Attempt one question

Question one

a)What are the primary characteristics of a bond?What distinguishes it from common stock(ordinary share) (8marks)

b)With examples differentiate between contingent assets and contingent liabilities.How is contingent liability accounted for? (7marks)

Question two

Mashariki company ltd issued a sh. 100,000 of 10% bond dated January 2011 on July 1st 2011 to yield 8%The bond pay interest each June 30th and December 31st.The bond will mature on 31st 2013.
Required
a)Compute the price of the bond and provide the bond issue proceeds as a percentage of the par value (3 marks)

b)Prepare a journal entry to record issuance of the bond (2 marks)

c)Prepare a bond premium/discount amortization schedule using effective interest method
(4 marks)
d)Prepare journal entries to record interest expense on June 30th 2013 by-
i)Effective interest method (2 marks)

ii)Straight line method (2 marks)

e)Assuming that the market rate is still 8%,what price would a second investor pay the first investor on June 30 2012,for sh. 10,000 of the bonds (2 marks)

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