Financial Accounting II
Pokhara University | Old Question Paper
BBA | Second Semester
Year: 2015 | Semester : Fall
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Section “A [10 x2]
Very Short Answer Questions
Attempt all the questions
Exam 2015 , Fall
1. What do credit terms 3/20, n/60 mean?
2. Briefly explain the methods estimating bad debts.
3. How depreciation for the year is calculated under production unit method?
4. Define contingent liability?
5. Describe the situation where bond are issued at premium?
6. Give any two differences between operating lease and financial lease 1.
7. A company reported net income during the year of Rs.90,000 and paid dividends of Rs.15,000
To its preferred stockholders. During the year, 20,000 shares of stock outstanding and 10,000 shares of preferred stock were outstanding. Calculate earnings per share.
8. A company provides the following information:
Total stockholder equity 18,00,000, 10% preference capital book dividend is arrears for two years, number of common stock outstanding 13,200. Calculate book value per share of common stock .
9. City Centre accept credit card from its customer. It records the company end of the credit card sales total Rs 25,000 and remit the bill to credit card company on October 17. City Centre received Rs.23,750 from the credit card company .
Required: Necessary entries related to credit card sales, what percentage of collection fee charges by the credit card company
10. Alpha began the year with Rs.130,000 in merchandise inventory and ended the year with Rs.190,000. Sales and cost of goods sold for the year were Rs 900,000 and Rs. 640,000 respectively.
Required: Inventory turnover ratio and length of inventory cycle.
Section “B” [6 x 10]
Descriptive Answer Questions
Attempt any six questions
11. Differentiate between capital expenditure and revenue expenditure with example.
12. The University Bookstore reported the following information for the year 2012, regarding ball caps with logo
|Date||Units||Unit Cost||Total Cost|
|Inventory @January 1, 2012||500||Rs 10||Rs 5000|
|Total Goods Available for sale||4700||64400|
At the end of the year a physical count is taken and there are 600 ball caps left on December 31, 2012. Operating expenses Rs 5,000 excluding depreciation of Rs.1,000.Selling price per unit of ball is Rs.25 and tax rate is 30%.
Use the periodic inventory system and determine the ending inventory and cost of goods sold using a) FIFO b) Weighted Average
b) Prepare income statement under the two approaches.
c) Which method pay low tax and by how much?
d) If price is decreasing order which method pays more tax?
13. At the beginning 2014. Cubs Corp. account receivable balance was Rs.25,000 and the allowance for doubtful debt was Rs 8.000 (Cr).During the year sales made Rs. 800,000 of which 80% on credit. Collection during the year was Rs 500,000 . The company wrote off Rs 5000 of uncollectible accounts during the year
a) Prepare journal entries to recognize bad debts assuming that (a) bad debt expenses is 5% of credit sales and (b) Bad expenses is 10% of year end account receivable .
b) What is the net realizable value of account receivable on December 31, 2014 under which each assumption above?
c) Why allowance method of accounting for doubtful debt is better than direct method?
14. Shikhar shoes Ltd. acquired a machine on 1 July 2011 of Rs 200,000 including 10% taxes. Additional amounts were paid for transport Rs 35,000 and installation Rs 25,. It was estimated the machine would have a useful life of 5 years, and Rs 10,000 as residual value .It also paid Rs 40,000 for insurance during 5 years of life. The company follows the straight line method for depreciation.
On 1 January 2013, the company re-examined its estimates of useful life and residual values, and decided that the remaining life of this machine would be 3 years from that date with a residual value of Rs.5,000 .
On 30 June 2014, the machine was sold for Rs.50,000 as it was found to be inefficient. Shikhar shoes Ltd’s financial year ends 31 December .
a) Necessary entries for 2011
b) Depreciation expenses for 2013
c) Journal entries for sale of machine
15. a) Differentiate between periodic inventory system and perpetual inventory system.
b) On October 1, 2009 Vibek company borrowed Rs.50,000 from a bank Vibek signed a 10 month, 12% promissory note for the entire amount. It uses a calendar year-end.
Required: What adjustments would be made on the year-end? Also show the journal entries for the payment of principal and interest on the due date
16. Travel-smith Nepal wishes to issue 100 bonds, Rs.1,000 par with a stated interest rate of 10% in January 1, 2013. The bonds will have a 5 years life and pay interest annually. At the date of issuance that the market rate is (a) 8% and (b) 12%.
a) Calculated the price at which the bonds would be issued under of the two market interest rates and pass the journal entries.
b) Amortize the discounted amount using the effective interest method .
c) How the bond payable presented on balance sheet at the end of 3rd year?
17. a) What is treasury stock?
b) Clear view Company Manufactures and sells high-quality television sets. The most popular line sells for Rs.1,000 each and is accompanied by a three year warranty to repair.Free of charge ,any defective unit. Average costs to repair each defective in it will be Rs. 90 for replacement parts and Rs.60 for labor. Clear view estimates that warranty costs of Rs.12,600 will be incurred during 2010. The company actually sold 600 sets and incurred replacement part cost of Rs.3,600 and labor costs of Rs.5,400 during the year . The adjusted 2010 ending balance in the estimated Liability for Warranty account is 10200.
i. How many defective units from this year’s sales does clear view company estimate will returned for repair?
ii. What percentage of sales does clear view company estimate will be returned for repair?
Section “C” 
18) Andrew Company was incorporated on January 1, 2010 under a corporate charter that authorized the issuance of 50,000 shares of par common stock and 20,000 shares of Rs.100 par, 8% stock. The following events occurred during 2010. Andrew wants to record the events and develop financial statements on December 31, 2010.
a) Issued for cash 10,000 shares of common stock at Rs.25 per share and 1,000 shares of preferred stock at Rs 110 per share January 15, 2010.
b ) Acquired a patent on April 1 in exchange for 2000 shares of common stock. At the time of exchange, the common stock was selling on the local stock exchange for Rs 30 per share.
c) Repurchased 500 shares of common stock on May 1 at Rs.20 per share. The corporation is holding the stock to be used for an employee bonus plan.
d) Declared a cash dividend Rs 1 per to common stockholders and 8% dividend 0 preferred stockholders on July 1. The preferred stock is noncumulative and nonparticipating. The dividend will be distributed on August 1.
e) Distributed the cash dividend on August 1
f) Declared and distributed to preferred stockholders a 10% stock dividend on September 1. At the time of dividend declaration, preferred stock was valued at Rs.130 per share.
g) On December 31, calculated the annual net income for the year to be Rs.200,000.
i. Recorded the accounting entries for (a) through (f).
ii. Develop the stockholders’ Equity section of Andrew Company’s balance sheet a December 31, 2010.
iii. Determine the book value per share of the common stock. Assume that the preferred stock can be redeemed at par.