Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 1
on the discipline “Financial Accounting II”
for the 3rd year students
1. Why are holding gains and losses treated differently for trading securities and securities available-forsale?
2. Johnstone Company is facing several decisions regarding investing and financing activities. Address
each decision independently.
On June 30, 2013, the Johnstone Company purchased equipment from Genovese Corp. Johnstone
agreed to pay Genovese $10,000 on the purchase date and the balance in five annual installments of
$8,000 on each June 30 beginning June 30, 2014. Assuming that an interest rate of 10% properly
reflects the time value of money in this situation, at what amount should Johnstone value the
equipment?
Johnstone needs to accumulate sufficient funds to pay a $400,000 debt that comes due on December 31,
2018. The company will accumulate the funds by making five equal annual deposits to an account
paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is
made on December 31, 2013.
3. Camden Biotechnology began operations in September 2013. The following selected transactions relate
to liabilities of the company for September 2013 through March 2014. Camden’s fiscal year ends on
December 31. Its financial statements are issued in April.
2013
a. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term
line of credit of up to $15,000,000 at the bank’s prime rate (10.5% at the time). The company will pay
no commitment fees.
b. On October 1, borrowed $12 million cash from Second Commercial Bank under the line of credit
and issued a five-month promissory note. Interest at the prime rate of 10% was payable at maturity.
Management planned to issue 10-year bonds in February to repay the note.
c. Received $2,600 of refundable deposits in December for reusable containers used to transport and
store chemical-based products.
d. For the September–December period, sales on account totaled $4,100,000. The state sales tax rate is
3% and the local sales tax rate is 3%. (This is a summary journal entry for the many individual sales
transactions for the period.)
e. Recorded the adjusting entry for accrued interest.
2014
f. In February, issued $10 million of 10-year bonds at face value and paid the bank loan on the March 1
due date.
g. Half of the storage containers covered by refundable deposits were returned in March. The remaining
containers are expected to be returned during the next six months.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №2
on the discipline “Financial Accounting II”
for the 3rd year students
1. What are the essential characteristics of liabilities for purposes of financial reporting?
2. Southern Atlantic Distributors began operations in January 2013 and purchased a delivery truck for
$40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life
for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2013, 30% in 2014,
and 20% in 2015. Pretax accounting income for 2013 was $300,000, which includes interest revenue of
$40,000 from municipal bonds. The enacted tax rate is 40%.
Required:
Assuming no differences between accounting income and taxable income other than those described
above:
1. Prepare the journal entry to record income taxes in 2013.
2. What is Southern Atlantic’s 2013 net income?
3. On January 1, 2013, Nath-Langstrom Services, Inc., a computer software training firm, leased several
computers from Computer World Corporation under a two-year operating lease agreement. The contract
calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each
year. The computers were acquired by Computer World at a cost of $90,000 and were expected to have
a useful life of six years with no residual value.
Required:
Prepare the appropriate entries for) the lessor from the inception of the lease through the end of 2013.
(Use straight-line depreciation.)
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №3
on the discipline “Financial Accounting II”
for the 3rd year students
1. Describe types of temporary differences. Provide examples for each type.
2. Information from the financial statements of Ames Fabricators, Inc., included the following:
Common shares
Convertible preferred shares(
convertible into 32,000 shares
of common)
10% convertible bonds (
convertible into 30,000 shares
of common)
December 31
2013
100,000
12,000
December 31
2012
100,000
12,000
1,000,000
1,000,000
Ames’s net income for the year ended December 31, 2013, is $500,000. The income tax rate is 40%.
Ames paid dividends of $5 per share on its preferred stock during 2013.
Required:
Compute basic and diluted earnings per share for the year ended December 31, 2013.
3. Pin Corporation paid $1,800,000 for a 90 percent interest in San Corporation on January 1, 2011; San’s
total book value was $1,800,000. The excess was allocated as follows: $60,000 to undervalued
equipment with a three-year remaining useful life and $140,000 to goodwill. The income statements of
Pin and San for 2011 are summarized as follows (in thousands):
Pin
San
Sales
4000
1600
Income from San
180
Cost of sale
(2000)
(800)
Depreciation expense
(400)
(240)
Other expense
(800)
(360)
Net income
980
200
Required:
1. Calculate the goodwill that should appear in the consolidated balance sheet of Pin and Subsidiary
at December 31, 2011.
2. Calculate consolidated net income for 2011.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №4
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is zero coupon bond?
2. Determine the future value of the following single amounts:
3. Amalgamated General Corporation is a consulting firm that also offers financial services through its
credit division. From time to time the company buys and sells securities intending to earn profits on
short-term differences in price. The following selected transactions relate to Amalgamated’s investment
activities during the last quarter of 2013 and the first month of 2014. The only securities held by
Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on
May 1 at face value. The company’s fiscal year ends on December 31.
2013
Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a
speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be
held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are expected to cause
their fair value to continue to fall.
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be
held until they mature in 2028. Semiannual interest is payable May 31 and November 30.
20 purchased U. S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on
short-term differences in prices.
21 21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities,
hoping to earn profits on short-term differences in prices.
22 old the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The
market price of the Millwork Ventures Company preferred stock was $27.50 per share and $11.50 per
share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for
Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.
2014
Jan. 7 Sold the NXS Corporation common shares for $43 million.
Required: Prepare the appropriate journal entry for each transaction or event.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №5
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is a bargain purchase option?
2. On December 31, 2011, the separate-company financial statements for Pan Corporation and its 70
percent-owned subsidiary, Sad Corporation, had the following account balances related to dividends
(in thousands).
Dividends for 2011
Dividends payable at December
31,2011
Pan
1200
600
Sad
800
200
Required:
1. At what amount will dividends be shown in the consolidated retained earnings statement?
2. At what amount should dividends payable be shown in the consolidated balance sheet?
3. American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation.
Barton and Barton completed construction of the machine on January 1, 2013. In payment for the $4
million machine, American Food Services issued a four-year installment note to be paid in four
equal payments at the end of each year. The payments include interest at the rate of 10%.
Required:
1. Prepare the journal entry for American Food Services’ purchase of the machine on January 1,
2013.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2013.
4. Prepare the journal entry for the third installment payment on December 31, 2015.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №6
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is a deferred annuity?
2. Dixon Development began operations in December 2013. When lots for industrial development are
sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots,
Dixon recognizes income for tax purposes when collected. Income recognized for financial reporting
purposes in 2013 for lots sold this way was $12 million, which will be collected over the next three
years. Scheduled collections for 2014–2016 are as follows:
2014
4 million
2015 5 million
2016 3 million
= $12 million
Pretax accounting income for 2013 was $16 million. The enacted tax rate is 40%.
Required:
1. Assuming no differences between accounting income and taxable income other than those described
above, prepare the journal entry to record income taxes in 2013.
2. Suppose a new tax law, revising the tax rate from 40% to 35%, beginning in 2015, is enacted in
2014, when pretax accounting income was $15 million. Prepare the appropriate journal entry to record
income taxes in 2014.
3. Sometimes compensation packages include bonuses designed to provide performance incentives to
employees. The difficulty a bonus can cause accountants is not an accounting problem, but a math
problem. The complication is that the bonus formula sometimes specifies that the calculation of the
bonus is based in part on the bonus itself. This occurs anytime the bonus is a percentage of income
because expenses are components of income, and the bonus is an expense.
Regalia Fashions has an incentive compensation plan through which a division manager receives a
bonus equal to 10% of the division’s net income. Division income in 2013 before the bonus and income
tax was $150,000. The tax rate is 30%.
Required:
1. Express the bonus formula as one or more algebraic equation(s). *
2. Using these formulas calculate the amount of the bonus.
3. Prepare the adjusting entry to record the bonus compensation.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №7
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is a noncontrolling interest?
2. Determine the present value of the following single amounts:
3. Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a
foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2013, for $400 million. At the date of purchase, the
book value of Vancouver’s net assets was $775 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant facilities. The fair value exceeded book value
by $5 million for the inventory and by $20 million for the plant facilities. The estimated useful life of
the plant facilities is 16 years. All inventory acquired was sold during 2013. Vancouver reported net
income of $140 million for the year ended December 31, 2013. Vancouver paid a cash dividend of $30
million.
Required:
Prepare all appropriate journal entries related to the investment during 2013.
What amount should Northwest report as its income from its investment in Vancouver for the year
ended December 31, 2013?
What amount should Northwest report in its balance sheet as its investment in Vancouver?
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №8
on the discipline “Financial Accounting II”
for the 3rd year students
1.
Describe three types of company combination with examples.
2. Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary
service is providing alternate financing by acquiring equipment and leasing it to customers under longterm direct financing leases. Universal earns interest under these arrangements at a 10% annual rate.
The company leased an electronic typesetting machine it purchased for $30,900 to a local publisher,
Desktop Inc., on December 31, 2012. The lease contract specified annual payments of $8,000 beginning
January 1, 2013 , the inception of the lease, and each December 31 through 2014 (three-year lease
term). The publisher had the option to purchase the machine on December 30, 2015, the end of the lease
term, for $12,000 when it was expected to have a residual value of $16,000.
Required:
1) Show how Universal calculated the $8,000 annual lease payments for this direct financing lease.
2) Prepare an amortization schedule that describes the pattern of interest revenue for Universal
Leasing over the lease term.
3) Prepare the appropriate entries for Universal Leasing from the inception of the lease through the
end of the Lease term.
3. Listed below are ten independent situations. For each situation indicate (by letter) whether it will create
a deferred tax asset (A), a deferred tax liability (L), or neither (N).
Situation:
_____ 1. Advance payments on insurance deductible when paid.
_____ 2. Estimated warranty costs, tax deductible when paid.
_____ 3. Rent revenue collected in advance; cash basis for tax purposes.
_____ 4. Interest received from investments in municipal bonds.
_____ 5. Prepaid expenses tax deductible when paid.
_____ 6. Operating loss carryforward.
_____ 7. Operating loss carryback.
_____ 8. Straight-line depreciation for financial reporting; MACRS for tax purposes.
_____ 9. Organization costs expensed when incurred, tax deductible over 15 years.
_____ 10. Life insurance proceeds received upon the death of the company president.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №9
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is push down accounting?
2. On January 1, 2013, Tonge Industries had outstanding 440,000 common shares (par $l) that
originally sold for $20 per share, and 4,000 shares of 10% cumulative preferred stock (par $100),
convertible into 40,000 common shares.
On October 1, 2013, Tonge sold and issued an additional 16,000 shares of common stock at $33.
At December 31, 2013, there were incentive stock options outstanding, issued in 2012, and
exercisable after one year for 20,000 shares of common stock at an exercise price of $30. The
market price of the common stock at year-end was $48. During the year the price of the common
shares had averaged $40. Net income was $650,000. The tax rate for the year was 40%.
Required:
Compute basic and diluted EPS for the year ended December 31, 2013.
3. On April 1, Par Company paid $1,600,000 for all the issued and outstanding common stock of Son
Corporation in a transaction properly accounted for as an acquisition. Son Corporation is dissolved.
The recorded assets and liabilities of Son Corporation on April 1 follow:
Cash
160,000
Inventory
480,000
Property and equipment (net of accumulated depreciation of $640,000)
960,000
Liabilities
(360,000)
On April 1, it was determined that the inventory of Son had a fair value of $380,000 and the
property and equipment (net) had a fair value of $1,120,000. What is the amount of goodwill
resulting from the acquisition?
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №10
on the discipline “Financial Accounting II”
for the 3rd year students
1. Why are preferred dividends deducted from net income when calculating EPS? Are there circumstances
when this deduction is not made?
2. Arnold Industries has pretax accounting income of $33 million for the year ended December 31, 2013.
The tax rate is 40%. The only difference between accounting income and taxable income relates to an
operating lease in which Arnold is the lessee. The inception of the lease was December 28, 2013. An $8
million advance rent payment at the inception of the lease is tax-deductible in 2013 but, for financial
reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease
term.
Required:
a. Determine the amounts necessary to record Arnold’s income taxes for 2013 and prepare the
appropriate journal entry.
b. Determine the amounts necessary to record Arnold’s income taxes for 2014 and prepare the
appropriate journal entry. Pretax accounting income was $50 million for the year ended
December 31, 2014.
3. Harding Company is in the process of purchasing several large pieces of equipment from Danning
Machine Corporation. Several financing alternatives have been offered by Danning: 1. Pay $1,000,000
in cash immediately. 2. Pay $420,000 immediately and the remainder in 10 annual installments of
$80,000, with the first installment due in one year. 3. Make 10 annual installments of $135,000 with the
first payment due immediately. 4. Make one lump-sum payment of $1,500,000 five years from date of
purchase.
Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at an
8% interest rate.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №11
on the discipline “Financial Accounting II”
for the 3rd year students
1. How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?
2. Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1,
on July 1, 2013. Company management has the positive intent and ability to hold the bonds until
maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF
paid $200 million for the bonds. The company will receive interest semiannually on June 30 and
December 31. As a result of changing market conditions, the fair value of the bonds at December 31,
2013 was $210 million.
Required:
Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2013.
Prepare the journal entry by Tanner-UNF to record interest on December 31, 2013, at the
effective (market) rate.
3. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF
to sell the investment on January 2, 2014, for $190 million. Prepare the journal entry to record the sale.
i. The lease agreement and related facts indicate the following:
ii. Leased equipment had a retail cash selling price of $300,000. Its useful life was five
years with no residual value.
iii. Collectibility of the lease payments by the lessor was reasonably predictable and there
were no costs to the lessor that were yet to be incurred.
iv. The lease term is five years and the lessor paid $265,000 to acquire the equipment (salestype lease).
v. Lessor’s implicit rate when calculating annual lease payments was 8%.
vi. Annual lease payments beginning January 1, 2013, the inception of the lease, were
$69,571.
vii. Costs of negotiating and consummating the completed lease transaction incurred by the
lessor were $7,500.
Required:
Prepare the appropriate entries for the lessor.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD №12
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is “comprehensive income”? Its composition varies from company to company but may include
which investment-related items that are not included in net income?
2. As a long-term investment at the beginning of the fiscal year, Florists International purchased 25% of
Nursery Supplies Inc.’s 8 million shares for $65 million. The fair value and book value of the shares
were the same at that time. During the year, Nursery Supplies earned net income of $60 million and
distributed cash dividends of $1.25 per share. At the end of the year, the fair value of the shares is $62
million.
Required:
Prepare the appropriate journal entries from the purchase through the end of the year.
1. On January 1, 2013, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net
price of $40.8 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of
face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible
into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method.
On June 1, 2015, Madison notified bondholders of its intent to call the bonds at face value plus a 1%
call premium on July 1, 2015. By June 30 all bondholders had chosen to convert their bonds into shares
as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the
requisite number of shares for the bonds being converted.
Required:
1. Prepare the journal entry for the issuance of the bonds by Madison.
2. Prepare the journal entry for the June 30, 2013, interest payment.
3. Prepare the journal entries for the June 30, 2015, interest payment by Madison and the conversion of
the bonds (book value method).
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 13
on the discipline “Financial Accounting II”
for the 3rd year students
1. Describe three types of company combination with examples.
2. PJ Corporation pays $5,400,000 for an 80 percent interest in Sof Corporation on January 1,
2011, at which time the book value and fair value of Sof’s net assets are as follows (in
thousands):
Book value
Fair value
Current assets
2000
3000
Equipment – net
4000
6000
Other plant assets – net
2000
2000
Liabilities
(3000)
(3000)
Net assets
5000
8000
Required: Prepare a schedule to allocate the fair value/book value differentials to Sof’s net
assets.
3. Information from the financial statements of Henderson-Niles Industries included the following
at December 31, 2013:
Common shares outstanding throughout the year - 100 millon
Convertible preferred shares
(convertible into 32 million shares of common)
- $60 million
Convertible 10% bonds
(convertible into 13.5 million shares of common) -$900 million
Henderson-Niles’ net income for the year ended December 31, 2013, is $520 million. The
income tax rate is 40%. Henderson-Niles paid dividends of $2 per share on its preferred stock
during 2013.
Required:
Compute basic and diluted earnings per share for the year ended December 31, 2013.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 14
on the discipline “Financial Accounting II”
for the 3rd year students
1. How the equity method relates to consolidated financial statements?
2. The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal
year ends on December 31.
Required:
Prepare the appropriate journal entries through the maturity of each liability.
2013
Jan. 13 Negotiated a revolving credit agreement with Parish Bank that can be renewed annually upon
bank approval. The amount available under the line of credit is $20 million at the bank’s prime rate.
Feb. 1 Arranged a three-month bank loan of $5 million with Parish Bank under the line of credit
agreement. Interest at the prime rate of 10% was payable at maturity.
May 1 Paid the 10% note at maturity.
Dec. 1 Supported by the credit line, issued $10 million of commercial paper on a nine-month note.
Interest was discounted at issuance at a 9% discount rate.
31 Recorded any necessary adjusting entry(s).
2014
Sept. 1 Paid the commercial paper at maturity.
3. Book values and fair values of Sli Corporation’s assets and liabilities on December 31, 2010, are as
follows (in thousands):
Book value
Fair value
Cash
140
140
AR-net
160
160
Inventories
160
200
Land
300
400
Buildings- net
700
1000
Equipment – net
440
600
1900
2500
AP
200
200
Note payable
280
Capital stock
1000
Retained earnings
420
1900
On January 1, 2011, Por Corporation acquires all of Sli’s capital stock for $2,500,000 cash. The
acquisition is recorded using push-down accounting.
REQUIRED
1. Prepare the January 1 journal entry on Sli’s books to record push-down values.
2. Prepare a balance sheet for Sli Corporation immediately after the acquisition on January 1 under
push down accounting.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 15
on the discipline “Financial Accounting II”
for the 3rd year students
1. What are four criteria of capital lease?
2. Universal Foods issued 10% bonds, dated January 1, with a face amount of $150 million on January 1,
2013. The bonds mature on December 31, 2027 (15 years). The market rate of interest for similar issues
was 12%. Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line
method.
Required:
1. Determine the price of the bonds at January 1, 2013.
2. Prepare the journal entry to record their issuance by Universal Foods on January 1, 2013.
3. Prepare the journal entry to record interest on June 30, 2013.
4. Prepare the journal entry to record interest on December 31, 2020.
3. Allied Industries manufactures high-performance conveyers that often are leased to industrial
customers. On December 31, 2013, Allied leased a conveyer to Poole Carrier Corporation for a threeyear period ending December 31, 2016, at which time possession of the leased asset will revert back to
Allied. Equal payments under the lease are $200,000 and are due on December 31 of each year. The
first payment was made on December 31, 2013. Collectability of the remaining lease payments is
reasonably assured, and Allied has no material cost uncertainties. The conveyer cost $450,000 to
manufacture and has an expected useful life of six years. Its normal sales price is $659,805. The
expected residual value of $150,000 at December 31, 2016, is guaranteed by United Assurance Group.
Poole Carrier’s incremental borrowing rate and the interest rate implicit in the lease payments are 10%.
Required:
Prepare an amortization schedule describing the pattern of interest over the lease term.
Prepare the appropriate entries for both Poole on December 31, 2013.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 16
on the discipline “Financial Accounting II”
for the 3rd year students
1. What distinguishes current liabilities from long-term liabilities?
2. Indicate (by letter) the way each of the investments listed below most likely should be accounted for
based on the information provided.
Item
a) 35% of the nonvoting preferred stock of American Aircraft Company.
b) Treasury bills to be held to maturity.
c) Two-year note receivable from affiliate.
d) Accounts receivable.
e) Treasury bond maturing in one week.
f) Common stock held in trading account for immediate resale.
g) Bonds acquired to profit from short-term differences in price.
h) 35% of the voting common stock of Computer Storage Devices Company.
i) 90% of the voting common stock of Affiliated Peripherals, Inc.
j) Corporate bonds of Primary Smelting Company to be sold if interest rates fall ½%.
k) 25% of the voting common stock of Smith Foundries Corporation: 51% family-owned by Smith
family; fair value determinable.
l) 17% of the voting common stock of Shipping Barrels Corporation: Investor’s CEO on the board
of directors of Shipping Barrels Corporation
Reporting Category
T. Trading securities
M. Securities held-to-maturity
A. Securities available-for-sale
E. Equity method
C. Consolidation
N. None of these
3. Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a
foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2013, for $400 million. At the date of purchase, the
book value of Vancouver’s net assets was $775 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant facilities. The fair value exceeded book value
by $5 million for the inventory and by $20 million for the plant facilities. The estimated useful life of
the plant facilities is 16 years. All inventory acquired was sold during 2013. Vancouver reported net
income of $140 million for the year ended December 31, 2013. Vancouver paid a cash dividend of $30
million.
Required:
i. Prepare all appropriate journal entries related to the investment during 2013.
ii. What amount should Northwest report as its income from its investment in Vancouver for the year
ended December 31, 2013?
iii. What amount should Northwest report in its balance sheet as its investment in Vancouver?
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 17
on the discipline “Financial Accounting II”
for the 3rd year students
1. What Is Significant Influence?
2. Listed below are several terms and phrases associated with current liabilities. Pair each item from List A
(by letter) with the item from List B that is most appropriately associated with it.
List A.
1) Face amount ×Interest rate ×Time.Informal agreement
2) Payable with current assets.
3) Short-term debt to be refinanced with common stock.
4) Present value of interest plus present value of principal.
5) Noninterest-bearing.
6) Noncommitted line of credit.
7) Pledged accounts receivable.
8) Reclassification of debt.
9) Purchased by other corporations.
10) Expenses not yet paid.
11) Liability until refunded.
12) Applied against purchase price.
List B.
a) Secured loan
b) Refinancing prior to the issuance of the financial statements
c) Accounts payable
d) Accrued liabilities
e) Commercial paper
f) Current liabilities
g) Long-term liability
h) Usual valuation of liabilities
i) Interest on debt
j) Customer advances
k) Customer deposits
3. FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various
investment objectives. The following selected transactions relate to FF&T’s investment activities during the
last two months of 2013. At November 1, FF&T held $48 million of 20-year, 10% bonds of Convenience,
Inc., purchased May 1, 2013, at face value. Management has the positive intent and ability to hold the bonds
until maturity. FF&T’s fiscal year ends on December 31.
Nov. 1 Received semiannual interest of $2.4 million from the Convenience, Inc., bonds.
Dec. 1 Purchased 12% bonds of Facsimile Enterprises at their $30 million face value, to be held until
they mature in 2026. Semiannual interest is payable May 31 and November 30.
31 Purchased U.S. Treasury bills that mature in two months for $8.9 million.
31 Recorded any necessary adjusting entry(s) relating to the investments. The fair values of the
investments at December 31 were: Convenience bonds $44.7 million Facsimile Enterprises bonds 30.9 million
U.S. Treasury bills 8.9 million
Required: Prepare the appropriate journal entry for each transaction or event.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 18
on the discipline “Financial Accounting II”
for the 3rd year students
1. Distinguish between basic and diluted EPS.
2. On January 1, 2013, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction
Company for $300 million cash. At the date of acquisition of the stock, Lake’s net assets had a fair
value of $900 million. Their book value was $800 million. The difference was attributable to the fair
value of Lake’s buildings and its land exceeding book value, each accounting for one-half of the
difference. Lake’s net income for the year ended December 31, 2013, was $150 million. During 2013,
Lake declared and paid cash dividends of $30 million. The buildings have a remaining life of 10 years.
Required:
Prepare all appropriate journal entries related to the investment during 2013, assuming Cameron
accounts for this investment by the equity method.
3. The Gorman Group issued $900,000 of 13% bonds on June 30, 2013, for $967,707. The bonds were
dated on June 30 and mature on June 30, 2033 (20 years). The market yield for bonds of similar risk and
maturity is 12%. Interest is paid semiannually on December 31 and June 30.
Required:
i. Prepare the journal entry to record their issuance by The Gorman Group on June 30,
2013.
ii. Prepare the journal entry to record interest on December 31, 2013 (at the effective rate).
iii. Prepare the journal entry to record interest on June 30, 2014 (at the effective rate).
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 19
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is push down accounting?
2. On January 4, 2013, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling
Company common stock. The investment represents a 30% interest in the net assets of Lavery and
gave Runyan the ability to exercise significant influence over Lavery’s operations. Runyan received
dividends of $2.00 per share on December 15, 2013, and Lavery reported net income of $160
million for the year ended December 31, 2013. The market value of Lavery’s common stock at
December 31, 2013 was $31 per share. On the purchase date, the ©Dr. Chula King All Rights
Reserved book value of Lavery’s net assets was $800 million and:
a) The fair value of Lavery’s depreciable assets, with an average remaining life of six years exceeded their
book value by $80 million; and
b) The remainder of the excess of the cost of the investment over the book value of the net assets purchased
was attributable to goodwill.
Required:
Prepare all appropriate journal entries related to the investment during 2013, assuming Runyan accounts for this
investment by the equity method.
3. Johnstone Company is facing several decisions regarding investing and financing activities. Address
each decision independently.
1. On June 30, 2013, the Johnstone Company purchased equipment from Genovese Corp.
Johnstone agreed to pay Genovese $10,000 on the purchase date and the balance in five annual
installments of $8,000 on each June 30 beginning June 30, 2014. Assuming that an interest rate of 10%
properly reflects the time value of money in this situation, at what amount should Johnstone value the
equipment?
2. Johnstone needs to accumulate sufficient funds to pay a $400,000 debt that comes due on
December 31, 2018. The company will accumulate the funds by making five equal annual deposits to an
account paying 6% interest compounded annually. Determine the required annual deposit if the first
deposit is made on December 31, 2013.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 20
on the discipline “Financial Accounting II”
for the 3rd year students
1) Explain compound interest.
2) American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation.
Barton and Barton completed construction of the machine on January 1, 2013. In payment for the $4
million machine, American Food Services issued a four-year installment note to be paid in four equal
payments at the end of each year. The payments include interest at the rate of 10%.
Required:
1. Prepare the journal entry for American Food Services’ purchase of the machine on January 1, 2013.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2013.
4. Prepare the journal entry for the third installment payment on December 31, 2015.
3) The lease agreement and related facts indicate the following:
a. Leased equipment had a retail cash selling price of $300,000. Its useful life was five years with no
residual value.
b. Collectibility of the lease payments by the lessor was reasonably predictable and there were no costs
to the lessor that were yet to be incurred.
c. The lease term is five years and the lessor paid $265,000 to acquire the equipment (sales-type lease).
d. Lessor’s implicit rate when calculating annual lease payments was 8%.
e. Annual lease payments beginning January 1, 2013, the inception of the lease, were $69,571.
f. Costs of negotiating and consummating the completed lease transaction incurred by the lessor were
$7,500.
Required:
Prepare the appropriate entries for the lessor.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 21
on the discipline “Financial Accounting II”
for the 3rd year students
1. What is zero coupon bond?
2. Determine the present value of the following single amounts:
3. Arnold Industries has pretax accounting income of $33 million for the year ended December 31, 2013.
The tax rate is 40%. The only difference between accounting income and taxable income relates to an
operating lease in which Arnold is the lessee. The inception of the lease was December 28, 2013. An $8
million advance rent payment at the inception of the lease is tax-deductible in 2013 but, for financial
reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease
term.
Required:
1. Determine the amounts necessary to record Arnold’s income taxes for 2013 and prepare the appropriate
journal entry.
2. Determine the amounts necessary to record Arnold’s income taxes for 2014 and prepare the appropriate
journal entry. Pretax accounting income was $50 million for the year ended December 31, 2014.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 22
on the discipline “Financial Accounting II”
for the 3rd year students
1. How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?
2. PJ Corporation pays $5,400,000 for an 80 percent interest in Sof Corporation on January 1, 2011, at
which time the book value and fair value of Sof’s net assets are as follows (in thousands):
Current assets
Equipment – net
Other plant assets –
net
Liabilities
Net assets
Book value
2000
4000
2000
Fair value
3000
6000
2000
(3000)
5000
(3000)
8000
Required: Prepare a schedule to allocate the fair value/book value differentials to Sof’s net assets.
3. FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet
various investment objectives. The following selected transactions relate to FF&T’s investment
activities during the last two months of 2013. At November 1, FF&T held $48 million of 20-year, 10%
bonds of Convenience, Inc., purchased May 1, 2013, at face value. Management has the positive intent
and ability to hold the bonds until maturity. FF&T’s fiscal year ends on December 31.
a) Nov. 1 Received semiannual interest of $2.4 million from the Convenience, Inc., bonds.
b) Dec. 1 Purchased 12% bonds of Facsimile Enterprises at their $30 million face value, to be held
until they mature in 2026. Semiannual interest is payable May 31 and November 30.
c) Purchased U.S. Treasury bills that mature in two months for $8.9 million.
d) 31 Recorded any necessary adjusting entry(s) relating to the investments. The fair values of the
investments at December 31 were: Convenience bonds $44.7 million Facsimile Enterprises
bonds 30.9 million U.S. Treasury bills 8.9 million.
Required:
Prepare the appropriate journal entry for each transaction or event.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 23
on the discipline “Financial Accounting II”
for the 3rd year students
1. What are the essential characteristics of liabilities for purposes of financial reporting?
2. Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a
foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of
Vancouver Timber and Milling, Inc., on January 2, 2013, for $400 million. At the date of purchase, the
book value of Vancouver’s net assets was $775 million. The book values and fair values for all balance
sheet items were the same except for inventory and plant facilities. The fair value exceeded book value
by $5 million for the inventory and by $20 million for the plant facilities. The estimated useful life of
the plant facilities is 16 years. All inventory acquired was sold during 2013. Vancouver reported net
income of $140 million for the year ended December 31, 2013. Vancouver paid a cash dividend of $30
million.
Required:
1. Prepare all appropriate journal entries related to the investment during 2013.
2. What amount should Northwest report as its income from its investment in
Vancouver for the year ended December 31, 2013?
3. What amount should Northwest report in its balance sheet as its investment in
Vancouver?
3. Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two
types of machines that would be appropriate are presently on the market. The company has determined
the following: Machine A could be purchased for $48,000. It will last 10 years with annual maintenance
costs of $1,000 per year. After 10 years the machine can be sold for $5,000.
Machine B could be purchased for $40,000. It also will last 10 years and will require maintenance costs
of $4,000 in year three, $5,000 in year six, and $6,000 in year eight. After 10 years, the machine will
have no salvage value. Required: Determine which machine Esquire should purchase. Assume an
interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs
are paid at the end of each year. Ignore income tax considerations.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 24
on the discipline “Financial Accounting II”
for the 3rd year students
1) What is a deferred annuity?
2) On January 1, 2013, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net
price of $40.8 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of
face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible
into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method.
On June 1, 2015, Madison notified bondholders of its intent to call the bonds at face value plus a 1%
call premium on July 1, 2015. By June 30 all bondholders had chosen to convert their bonds into shares
as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the
requisite number of shares for the bonds being converted.
Required:
1. Prepare the journal entry for the issuance of the bonds by Madison.
2. Prepare the journal entry for the June 30, 2013, interest payment.
3. Prepare the journal entries for the June 30, 2015, interest payment by Madison and the conversion of
the
bonds (book value method).
3) Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary
service is providing alternate financing by acquiring equipment and leasing it to customers under longterm direct financing leases. Universal earns interest under these arrangements at a 10% annual rate.
The company leased an electronic typesetting machine it purchased for $30,900 to a local publisher,
Desktop Inc., on December 31, 2012. The lease contract specified annual payments of $8,000 beginning
January 1, 2013 , the inception of the lease, and each December 31 through 2014 (three-year lease
term). The publisher had the option to purchase the machine on December 30, 2015, the end of the lease
term, for $12,000 when it was expected to have a residual value of $16,000.
Required:
1. Show how Universal calculated the $8,000 annual lease payments for this direct financing lease.
2. Prepare an amortization schedule that describes the pattern of interest revenue for Universal Leasing
over the lease term.
3. Prepare the appropriate entries for Universal Leasing from the inception of the lease through the end
of the Lease term.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 25
on the discipline “Financial Accounting II”
for the 3rd year students
1. Determine steps in recording fair value in an acquisition.
2. Dixon Development began operations in December 2013. When lots for industrial development are
sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots,
Dixon recognizes income for tax purposes when collected. Income recognized for financial reporting
purposes in 2013 for lots sold this way was $12 million, which will be collected over the next three
years. Scheduled collections for 2014–2016 are as follows:
2014
4 million
2015 5 million
2016 3 million
= $12 million
Pretax accounting income for 2013 was $16 million. The enacted tax rate is 40%.
Required:
1. Assuming no differences between accounting income and taxable income other than those described
above, prepare the journal entry to record income taxes in 2013.
2. Suppose a new tax law, revising the tax rate from 40% to 35%, beginning in 2015, is enacted in
2014, when pretax accounting income was $15 million. Prepare the appropriate journal entry to record
income taxes in 2014.
3. Camden Biotechnology began operations in September 2013. The following selected transactions relate
to liabilities of the company for September 2013 through March 2014. Camden’s fiscal year ends on
December 31. Its financial statements are issued in April.
2013
a. On September 5, opened checking accounts at Second Commercial Bank and negotiated a
short-term line of credit of up to $15,000,000 at the bank’s prime rate (10.5% at the time).
The company will pay no commitment fees.
b. On October 1, borrowed $12 million cash from Second Commercial Bank under the line of
credit and issued a five-month promissory note. Interest at the prime rate of 10% was
payable at maturity. Management planned to issue 10-year bonds in February to repay the
note.
c. Received $2,600 of refundable deposits in December for reusable containers used to
transport and store chemical-based products.
d. For the September–December period, sales on account totaled $4,100,000. The state sales tax
rate is 3% and the local sales tax rate is 3%. (This is a summary journal entry for the many
individual sales transactions for the period.)
e. Recorded the adjusting entry for accrued interest.
2014
f. In February, issued $10 million of 10-year bonds at face value and paid the bank loan on the March 1
due date.
g. Half of the storage containers covered by refundable deposits were returned in March. The remaining
containers are expected to be returned during the next six months.
Lecturer A. Kaldarova
______________________
Confirmed at the meeting of the department of "SocioEconomic Disciplines"
Minute №____ from ____ of
2015.
The dean of the faculty "International Educational
Programs"
Ronald Voogdt
_____________
name
signature
EXAMINATION CARD № 26
on the discipline “Financial Accounting II”
for the 3rd year students
1. Recognizing and measuring impairment losses. Explain two step process of goodwill impairment.
2. On December 31, 2011, the separate-company financial statements for Pan Corporation and its 70
percent-owned subsidiary, Sad Corporation, had the following account balances related to dividends (in
thousands)
Pan
Sad
Dividends for 2011
1200
800
Dividends payable at December
600
200
31,2011
Required:
a) At what amount will dividends be shown in the consolidated retained earnings statement?
b) At what amount should dividends payable be shown in the consolidated balance sheet?
3. Information from the financial statements of Ames Fabricators, Inc., included the following:
December 31
December 31
2013
2012
Common shares
100,000
100,000
Convertible preferred shares(
12,000
12,000
convertible into 32,000 shares
of common)
10% convertible bonds (
1,000,000
1,000,000
convertible into 30,000 shares
of common)
Ames’s net income for the year ended December 31, 2013, is $500,000. The income tax rate is 40%. Ames paid
dividends of $5 per share on its preferred stock during 2013.
Required:
Compute basic and diluted earnings per share for the year ended December 31, 2013.
Lecturer A. Kaldarova
______________________