The University of The West Indies: Open Campus
The University of The West Indies: Open Campus
The University of The West Indies: Open Campus
OPEN CAMPUS
Date: Time:
Materials required:
Answer booklet: Normal □ Special □
Not Required □
Calculator: Programmable □ Non Programmable □
(where applicable)
Multiple Choice Answer Sheets: Numerical □ Alphabetical □ Included □
SECTION A HAS ONE COMPULSORY QUESTION WITH TWO PARTS. ANSWER BOTH
PARTS.
SECTION B HAS FOUR QUESTIONS, ANSWER ANY TWO (2) OF THESE QUESTIONS.
DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY
INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
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First Examiner Second Examiner
QUESTION 1 – 20 MARKS
1. Miley Company sells computers for $1,500 each and also gives each customer a 2-year warranty
that requires the company to perform periodic services and to replace defective parts. During
2010, the
company sold 700 computers. Based on past experience, the company has estimated the total 2-year
warranty costs as $30 for parts and $60 for labor. (Assume sales all occur at December 31, 2010.)
In 2011, Miley incurred actual warranty costs relative to 2010 computer sales of $10,000 for parts and
$18,000 for labor.
Instructions
(a) Under the expense warranty treatment, give the entries to reflect the above transactions
(accrual method) for 2010 and 2011. (3 marks)
(b) Under the cash basis method, what are the Warranty Expense balances for 2010 and 2011?
(2 marks)
(c) How would the warranty liability be disclosed in the Statement of Financial Position? (2
marks)
2. On November 24, 2010, 26 passengers on Windsor Airlines Flight No. 901 were injured upon
landing
when the plane skidded off the runway. Personal injury suits for damages totaling $9,000,000 were
filed
on January 11, 2011 against the airline by 18 injured passengers. The airline carries no insurance.
Legal
counsel has studied each suit and advised Windsor that it can reasonably expect to pay 60% of the
DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY
INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
..................................... ............................................
First Examiner Second Examiner
Instructions:
Prepare any disclosures and journal entries required by the airline in preparation of December 31,
2010
2010 $240,000
2011 560,000
The following items caused the only differences between pretax financial income and taxable income.
1. In 2010, the company collected $180,000 of rent; of this amount, $60,000 was earned in 2010; the
other
$120,000 will be earned equally over the 2011–2012 period. The full $180,000 was included in
taxable
income in 2010.
2. The company pays a $10,000 fine for pollution.
3. In 2011, the company terminated a top executive and agreed to $90,000 of severance pay. The
amount
will be paid $30,000 per year for 2011–2013. The 2011 payment was made. The $90,000 was
expensed
in 2011. For tax purposes, the severance pay is deductible as it is paid.
Instructions
(a) Determine taxable income for 2010 and 2011. (2 marks)
(b) Determine the deferred income taxes at the end of 2010, and prepare the journal entry to record
income
taxes for 2010. ( 3 marks)
DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY
INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
..................................... ............................................
First Examiner Second Examiner
(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2011. (1 mark)
(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2011. (1 ½ mark)
(e) Compute the net deferred tax expense (benefit) for 2011. (1 mark)
(f) Prepare the journal entry to record income taxes for 2011. (1 ½ mark)
SECTION B HAS FOUR QUESTIONS, ANSWER ANY TWO (2) OF THESE QUESTIONS.
1. Explain the procedures used by the lessee to account for a finance lease. (4 marks)
2. On January 1, 2011, Dereau Corp. signs a 10 year non-cancelable lease agreement to lease a storage
building from Flex Storage Company. The following information pertains to this lease agreement.
i. The agreement requires equal rental payments of $90,000 beginning on January 1, 2011.
ii. The fair value of the building on January 1, 2011 is $550,000.
iii. The building has an estimated economic life of 12 years, with an unguaranteed residual value of
$10,000. Dereau depreciates similar buildings on the straight line method.
iv. The lease is non-renewable. At the termination of the lease, the building reverts to the lessor.
v. Dereau’s incremental borrowing rate is 12% per year. It is impracticable to determine the lessor’s
implicit rate.
vi. The yearly rental payment includes $3,088.14 of executory costs related to taxes on the property.
Instructions
(b) What is the present value of the minimum lease payments? (3 marks)
(d) Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to
record the payments and expenses related to this lease for the years 2011 and 2012. (7 marks)
Dereau’s Corp. year end is December 31.
DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY
INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
..................................... ............................................
First Examiner Second Examiner
Instructions
(a) Determine the defined benefit obligation at December 31, 2011. There are no net gains or losses.
(3 marks)
(b) Determine the fair value of plan assets at December 31, 2011. (3 marks)
(d) Prepare the journal entry to record pension expense and the contributions for 2011. (3 marks)
2. Differentiate between a defined contribution pension plan and a defined benefit pension plan.
(4 marks)
3. Explain how the employer’s obligation differs between the two types of plans. (4 marks)
DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY
INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
..................................... ............................................
First Examiner Second Examiner
1. Foley Corporation has the following capital structure at the beginning of the year:
Instructions
(a) Record the following transactions which occurred consecutively (show all calculations).
1. A total cash dividend of $90,000 was declared and payable to shareholders of record. Record
dividends payable on ordinary and preference shares in separate accounts. (3 marks)
2. A 10% ordinary share dividend was declared. The average fair value of the ordinary shares is
$18 a share. (5 marks)
3. Assume that net income for the year was $150,000 (record the closing entry) and the board of
directors appropriated $70,000 of retained earnings for plant expansion. (4 marks)
(b) Construct the equity section incorporating all the above information. (6 marks)
2. Explain the difference between the proportional method and the incremental method of allocating
the
proceeds of lump-sum sales of share capital. (2 marks)
DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY
INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
..................................... ............................................
First Examiner Second Examiner
1. On June 1, 2009, Triton Company and Wisdom Company merged to form T.W. Inc. A total of 800,000
shares were issued to complete the merger. The new corporation reports on a calendar year basis.
On April 1, 2011, the company issued an additional 600,000 shares for cash. All 1,400,000 shares were
outstanding on December 31, 2011.
T.W. Inc. also issued $600,000 of 20 year, 8% convertible bonds at par on July 1, 2011. Each $1,000 bond
converts to 40 ordinary shares a any interest date. None of the bonds have been converted to date. The interest
expense on the liability component of convertible bonds for 2011 was $30,000.
T.W. Inc. is preparing its annual report for the fiscal year ending December 31, 2011. The annual report will
show earnings per share figures based upon a reported after tax net income of $1,540,000. The tax rate is 40%.
Instructions
(b) The number of shares to be used for calculating Diluted earnings per share. (4 marks)
(c) The earnings figure to be used for calculating the Basic earnings per share. (1 mark)
(d) The earnings figure to be used for calculating the Diluted earnings per share. (3 marks)
2. Below are two unrelated transactions, present the entry(ies) necessary to record each transaction.
(7 marks)
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INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
..................................... ............................................
First Examiner Second Examiner
(b) Lexine Company issued $10,000,000 par value 10% bonds at 98. One share warrant was issued with each
$100 par value bond. At the time of issuance the warrants were selling for 44. The net present value of the
bonds without the warrants was $9,600,000.
DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY
INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed
forms should be handed to the Assistant Registrar (Examinations).
..................................... ............................................
First Examiner Second Examiner