Financial Accounting II – Old Question Paper 2008 | Semester: Fall

accoFinancial Accounting II
Pokhara University | Old Question Paper
Level: Bachelor
Year: 2008 | Semester: Fall

Exam 2008 Fall

1. The following information is available concerning the inventory of General Electric Supply Company: [15]

Beginning inventory 50 Rs. 18,000
Purchases of TV :

January 15


August 23

December 2











During the year, General Electric Supply Company sold 430 units of TV. It uses a periodic inventory system.
i. Calculate ending inventory and cost of goods sold under weighted average, FIFO, and LIFO methods.
ii. Assume an estimated tax rate of 35%. How much more or less will General Electric Supply Company pay in taxes by using FIFO instead of LIFO? Explain your answer.

2. a) Spring Company’s deposit all cash receipts into the Bank each day and makes all payment by check. On October 31, after all posting was completed; its cash account had a debit balance of Rs. 4,325. The Bank statement for the month ended on October 31 showed a balance of Rs. 3,988, other data are;                [10]
• Outstanding checks total Rs. 425.
• Oct. 31st cash receipt of Rs. 838 was placed in the night depositary and does not appear on the bank’s statement.
• Bank service charge for October is Rs. 14.
• Check No. 772 for store supplies was entered at Rs. 405, but paid by the bank at its actual amount of Rs. 315.
i. Prepare bank reconciliation statement.
ii. How much balance shall be reported on the balance sheet?
iii. Pass the journal entries for the company’s book
b) Briefly explain about the non-interest bearing notes.            [5]

3. a) On July 1, 2008 Bijay Bakery purchased a Baking Oven at a cash price of Rs. 240,000. Other expenses are: Value Added Tax (VAT) 13% on Cost, transport from Birgunj to Kathmandu is Rs. 8,000, installation charge is Rs. 4,000, and 3-year fire insurance policy Rs. 6,000.               [10]

i. Prepare necessary journal entries for the above transaction on July 1, 2008 for the purchase.
ii. Prepare journal entries for depreciation on December 31, 2008 assuming that the life of the oven is of 5 years with no salvage value under straight line method.
iii. Prepare journal entries for depreciation on December 31, 2008 assuming that the rate of deprecation charged by the company is 25% on WDV (Written down Value)

b) Referring to question (a) pass journal entries to record the gain or loss assuming the oven is sold on July 1, 2009 for Rs. 200,000. The machine is depreciated using straight-line depreciation method for 5 years with no salvage value.  [5]

4. a) What are operating assets? Explain with the help of suitable examples.   [7]
b) What are the basic characteristics of a Capital lease? How it is treated on the books of account? Explain. [8]

5. a) On October 1, 2006 Sunflower Company borrowed Rs. 25,000 from the bank. Sunflower signed a 10-month, 8% promissory note for the entire amount. It uses a calendar year-end.  [5]
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.

b) Printer Company issued five year, 10% bond with par value of Rs. 10,000 on January 1, 2007. Interest is paid annually on each December 31.     [10]
i. Calculate the issue price of bond if market rate is a) 8% and b) 12%.
ii. Amortize the discount, using the effective interest method.
iii. Prepare the journal entry to record interest expense on December 31, 2007 and the balance sheet presentation of the bonds on that date.

6. Phulbari Resort and spa Private Limited’s shareholders equity section of the Balance Sheet on December 31, 2004 was as follows:    [15]
Common stock, Rs 100 par value.
6000 shares issued and outstanding Rs. 600,000
Additional paid-in capital Rs. 480,000
Retained earnings Rs. 1,240,000
Total stockholder’s equity Rs. 2,320,000
On May 1, 2005, the company declared and issued a 15% stock dividend when the stock was selling for Rs. 200 per share. Then on November 1, it declared and issued a 2 for 1 stock split.
i. How many shares of stock are outstanding at year-end?
ii. What is the book value per share of these shares?
iii. Develop the stockholders equity section of Phulbari Resort and Spa’s Balance Sheet as of December 31, 2005.

7. Write short notes on (Any Two): [2×5=10]
a) Factors affecting bond price.
b) Stock dividend.
c) Warranties

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