Financial Accounting II – Old Question Paper 2009 | Semester: Fall

11Financial Accounting II
Pokhara University | Old Question Paper
Level: Bachelor
Year: 2009 | Semester: Fall

Exam 2009 Fall

1. Following is an inventory acquisition schedule for Fewa Tal inc for the year 2009.           [15]

  Units Unit Cost
Beginning inventory 1000 Rs. 25
February 4 4,000 24
April 12 3,000 23
September 10 1,500 22
December 5 2,500 20

During the year, Inc sold 9,000 units at Rs. 40 each. All expenses except cost of goods sold and taxes are amounted to Rs. 90,000. The tax is 25%.
a) Compute cost of goods sold and ending inventory under each of the following three methods (assume a periodic inventory system); (i) weighted average, (ii) FIFO, and (iii) LIFO.
b) Prepare income statements under each of the three methods.
c) Which method do you recommend so that Inc pays the least amount of taxes during 2009? Explain your answer.

2. At the beginning of 2008, Sharma and Company’s Account Receivable balance was Rs. 1,40,000 and the balance in the allowance for doubtful accounts was Rs. 2,350 (cr.). Its sales in that year were Rs. 10,50,000, 80% of which were on credit. Collections on account during the year were Rs. 6,70,000. The Company wrote off Rs. 4,000 of uncollectible accounts during the year.                     [15]

Required: –
a) Prepare summary journal entries related to the sales, collections, and write offs of accounts receivable during 2008.
b) Prepare journal entries to recognize bad debts assuming (i) bad debt expense is 3% of credit sales and (ii) amounts expected to be uncollectible are 6% of the year- end accounts receivable.
c) What is the net realizable value of accounts receivable on December 31st, 2008 under each assumption (i) and (ii) in part (b)?

3. a) Pokhara Trading Company (PTC) purchased a new machine for Rs. 7, 50,000.The machine required a special power connections costing Rs. 2,00,000 and another Rs.50, 000 was paid to assemble the machine and get it into operation. Assume that asset has an estimated life of 15 years and estimated residual value is Rs.1, 00,000. PTC is considering whether to use the straight line or the units of production method to depreciate the asset. Because the company is beginning a new production process, the machine will be used to produce 12,000 units in the 1st year. The total production will be produce by this machine 3,00,000 unit over its useful life.                     [8]

i) Calculate the cost of machine for accounting purpose.
ii) Calculate the depreciation expenses under the both methods.
iii) How would the asset appear on the balance sheet at the end of 5th year?
b) What do you mean by capital and revenue expenditure? Define with examples.                             [7]

4. Himalayan Services Company wishes to issue 100 bonds, Rs. 1,000 par value with a stated interest rate of 10% in July. The bonds will have a 5-year life and pay interest annually. At the date of issuance, assume that the market rate is (a) 8% and (b) 12%.                                   [15]
a) Calculate the price at which the bonds would be issued under each of the two-market interest rates and pass the journals.
b) Amortize the discounted amount using the effective interest method.

5. B&B company’s equity section of balance sheet as on 31/12/2008 appeared as follows:                        [15]

Particulars Amount Rs.
Common Stock Rs. 10 Par, 10,000 shares issued and outstanding 100,000.00
8% Preferred Stock Rs. 100 Par, 2,000 shares issued and outstanding 200,000.00
Additional Paid In Capital 300,000.00
Retained Earnings 500,000.00
Total Stockholder’s Equity 1100,000.00

The company has declared a total dividend of Rs. 160,000 as on 31/12/2008. It could not pay dividend for 2 years prior to the year 2008. Assuming that the preference shares are cumulative and participating, you are required to distribute the dividend to both the common and preferred stock and also pass the journal entry to record the declaration and payment of cash dividend. The dividend was paid on 30/01/2009. Also calculate the dividend per share for both the stock.

6. a) The following information is available for Max Company on August 31, 2008. [8]

  • Balance per company records Rs.8, 265
  • Un-deposited August 31, check Rs.1, 030
  • Bank services charge for August Rs.85
  • August outstanding check Rs. 3,900
  • Bill Receivable collected by bank but not recorded on the books Rs.1, 000
  • Interest on the preceding bill is recorded on company Rs.50
  • Bank statement balance Rs. 12,100
    Compute the cash balance to be reported on Max Company’s August 31 balance sheet. Prepare, if necessary, journal entry for the company.

b) On July 1, an explosion destroyed a store of raw material. The insurance company will pay to the store Rs. 10,000. But an estimate of the amount of inventory lost is needed for insurance purposes. The following information is available.                                                             [7]
Beginning Inventory Rs. 24,000
Purchases, January – June 23,000
Sales, January – June 40,000
Inventory not destroyed 2,000
Gross profit margin 20%
Prepare the journal entry on this store books to recognize the inventory lost and the insurance reimbursement.

7. Write short notes on: (Any Two): [2×5=10]
a) Account payable vs. Note payable
b) Operating vs. Capital leases.
c) Nature of inventory

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