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Midterm

Mid-Term Exam (2013 Fall, Section A1, Solutions).docx

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Department
Accounting
Course
ACCTG415
Professor
Jason Lee
Semester
Winter

Description
ACCTG 415 - Section A1 Solutions for Mid-Term Exam (2013 Fall) Question 1 (20 marks) Part I 7 marks January 1, 2013 Cash (16,000 × 1,000) 16,000,000 Sales 16,000,000 Warranty expense (800 × 1,000) 800,000 Warranty liability 800,000 December 31, 2013 Warranty liability 350,000 Inventory - Parts 210,000 Wages payable 140,000 Part II - A 5 marks Annual coupon = 8% × 5,000,000 = $400,000 Bond Price 1 1 1 = 5,000,000×(1+9) 6+400,000× 9 {1− (1+9 )} = $4,775,704 Cash 4,775,704 Bonds payable 4,775,704 Part II - B 3 marks Effective Premium/Discount Carrying Value Interest 1 Date Cash Paid Amortized of Bonds Jan. 1, 2013 $4,775,704 Dec. 31, 2013 $400,000 $429,813 $29,813 4,805,517 Dec. 31, 2014 400,000 432,497 32,497 4,838,014 Part II - C 2 marks Interest expense 432,497 Cash 400,000 Bonds payable 32,497 Part II - D 3 marks Call price = 1.01 × 5,000,000 = 5,050,000 Carrying value of bonds = 4,838,014 Loss on bond retirement 211,986 Bonds payable 4,838,014 Loss on bond retirement 211,986 Cash 5,050,000 Question 2 (24 marks) Jan. 30 3 marks Dividends in arrears 2 × 2.00 × 100,000 = 400,000 Current year's stated amount 2.00 × 100,000 = 200,000 Preferred dividends 600,000 Common dividends 1,120,000 ̶ 600,000 = 520,000 Preferred dividends 600,000 2 Common dividends 520,000 Cash 1,120,000 Feb. 10 3 marks Redemption price 26 × 10,000 = 260,000 Average issue price (2,200,000 ÷ 100,000) × 10,000 = 220,000 40,000 Preferred shares 220,000 Contributed surplus - Preferred shares 40,000 Cash 260,000 Apr. 28 4 marks Retirement price 12 × 80,000 = 960,000 Average issue price (6,400,000 ÷ 800,000) × 80,000 = 640,000 320,000 Common shares 640,000 Contributed surplus - Common shares 200,000 Retained earnings (960,000 ̶ 640,000 ̶ 200,000) 120,000 Cash 960,000 Note: Contributed surplus cannot have a negative balance. Thus, we allocate $200,000 to contributed surplus - common shares (which is the current balance of contributed surplus) and the remaining $120,000 to retained earnings. May 15 2 marks Number of common shares issued = 10% × 720,000 = 72,000 3 Retained earnings 792,000 Common shares (11 × 72,000) 792,000 4 Jun. 20 3 marks Proportion Fair value of preferred shares 25 × 40,000 = 1,000,000 40% Fair value of common shares 15 × 100,000 = 1,500,000 60% 2,500,000 100% Real estate - building 2,800,000 Preferred shares (40% × 2,800,000) 1,120,000 Common shares (60% × 2,800,000) 1,680,000 Note: Shares issued for non-cash consideration are measured at the value of assets received. Aug. 1 2 marks To record the subscription: Subscription receivable (14 × 400,000) 5,600,000 Common shares subscribed 5,600,000 To record the collection of the first instalment: Cash (40% × 5,600,000) 2,240,000 Subscription receivable 2,240,000 Note: The second instalment of 3,360,000 (= 60% × 5,600,000) is due on September 1. Sep. 1 5 marks To record the forfeiture of the first instalment paid by defaulted subscribe
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