KATHMANDU UNIVERSITY Marks Obtained:

BBA and BBIS

End - Semester Examination
February – June 2015 Session
August 2015

SUBJECT : ACC 202 – Financial Accounting II TIME : 10 min.

YEAR :I SEMESTER : II
FULL MARKS : 10

Examination Roll No.:___________________ Registration No.___________________

SECTION “A”
[10 Q. × 1 = 10 Marks]

Encircle the most appropriate answers from the given choices.

1. Which inventory costing method assigns the most recent cost to ending inventory?
a. Specific identification method
b. Weighted average method
c. FIFO method
d. LIFO method

2. Which one of the following is not included in cash and cash equivalents?
a. Commercial paper
b. Money market funds
c. Investment in stock
d. Checking account

3. Which one of the following ignores the balance in the allowance account?
a. Direct write – off method
b. Allowance method
c. Percentage of net credit sales approach
d. Percentage of accounts receivable approach

4. Which one of the following classifications fits to the investment in bonds that are not intended
to be held to maturity?
a. Debt securities
b. Held-to-maturity securities
c. Trading securities
d. Available-for-sale securities

5. Which one of the following is not a capital expenditure?

a. Adding a wing to a building
b. Replacing a vehicle’s engine
c. Replacing spark plugs
d. Taxes paid at time of purchase
6. How much will be accumulated in five years at 10% interest compounded annually for the
investment of Rs. 1,000 per year at the end of each year for five years?
a. Rs. 6,105
b. Rs. 8,115
c. Rs. 5,125
d. Rs. 7,205

7. What is the issue price of the bond due in 10 years, with face value of Rs. 1,000 , face rate of
interest 8%, and market rate of interest 6%?
a. Rs. 1,146.80
b. Rs. 1,194. 60
c. Rs. 1,236. 20
d. Rs. 1,086. 90

8. Which one of the following represents the stock issued by the firm and then repurchased
without the intention of reissuing at a later date?
a. Treasury stock
b. Retirement of stock
c. Stock split
d. Stock dividend

9. Which one of the following is a measure of the ability of a company to remain in business over
the long term?
a. Liquidity
b. Activity
c. Solvency
d. Profitability

10. What is the measure of a company’s success in earning a return for the common stockholders?
a. Return on common stockholders’ equity ratio
b. Earnings per share
c. Dividend payout ratio
d. Profitability
 KATHMANDU UNIVERSITY
BBA and BBIS
End - Semester Examination
February – June 2015 Session
August 2015

SUBJECT : ACC 202 – Financial Accounting II TIME : 2 Hrs. 50 min.

YEAR :I SEMESTER : II
FULL MARKS : 40
SECTION “B”
[6 Q. × 4 = 24 marks]
Attempt any SIX questions.
1. Golden Inc. presented the following inventory acquisition schedule for the year 2014:
Particulars Units Unit Cost
Beginning inventory 3,000 Rs. 50
Purchases:
January 15 12,000 48
May 10 9,000 46
September 7 4,500 44
December 25 7,500 40
During the year, the company sold 27,000 units at Rs. 80 each. Besides the cost of goods sold,
the company spent Rs. 100,000 on administration expenses and Rs. 80,000 on selling expenses.
The company is in 30% tax bracket.
Required:
a. Compute cost of goods sold and ending inventory under FIFO and LIFO methods assuming
periodic inventory system. [2]
b. Prepare income statements under both costing methods. [2]

2. Copper Inc. has availed the following information for the preparation of bank reconciliation
statement on June 30, 2015:
a. Balance as per bank statement as on June 30, 2015: Rs. 6,350.
b. Balance as per company’s records: Rs. 2,960.
c. Deposit in transit: Rs. 550.
d. Outstanding checks: Rs. 3,400.
e. A customer’s NSF check returned by the bank: Rs. 450.
f. Service charge for lockbox: Rs. 60
g. Bill receivable collected by the bank: Rs.1, 050.
Required:
i. Prepare a bank reconciliation statement as on June 30, 2015. [3]
ii. Pass journal entry to adjust in company’s book the service charge for lockbox. [1]

3. Diamond Inc. purchased a new machine on July 1, 2008, for Rs. 130,000. The machine has an
estimated useful life of 12 years with residual value of Rs. 10,000. Diamond has chosen to use
the straight line method of depreciation. On January 1, 2011, Diamond discovered that the
machine would not be useful beyond December 31, 2016, and estimated its value at that time to
be Rs. 3,000. The company closes its accounts on December 31 every year.
Required:
i. How much is the depreciation expense for the year 2008? [1]
ii. How much is the depreciation expense for the year 2011? [1]
iii. How much is the book value of the machine on December 31, 2014? [1]
iv. Was the depreciation recorded in 2008, 2009, and 2010 wrong? If so, why it was not
corrected? [1]
4. Steel Inc. agreed to finance a bus for City Public Transportation and signed a lease agreement
on January 1, 2010. The lease term states that City will pay five annual installments of Rs.
900,000 starting from December 31, 2010. Interest expense is based on a rate of 9%. The
present value of minimum lease payment is Rs. 3’501,000 which has been determined to be
greater than 90% of the fair market value of thebus on January 1, 2010.
Required:
a. Prepare a table to show the five-year amortization of the lease obligation using effective
interest rate method. [2]
b. Prepare journal entry for the lease payment on December 31, 2010. [1]
c. Present lease obligation on the balance sheet as of December 31, 2011. [1]
5. i. On January 1, 2013, Rs. 50,000 is deposited in a bank. The bank offered an 8% interest
rate. What amount will accumulate on January 1, 2018 if interest is compounded semi-
annually?[1]
ii. On July 1, 2014, Mirror Inc. borrowed Rs. 90,000 from a bank by issuing a 12-month note.
The bank discounted the note at 10%.
Required:
i. Prepare the journal entry for the issuance of the note. [1]
ii. Prepare the adjusting entry on December 31, 2014. [1]
iii. Prepare the journal entry for the payment of the note on July 1, 2015. [1]
6. The following ledger balances have been extracted from the books of Leading Company:
2014 2013 2012
Accounts receivable [ December 31 ] 450,000 300,000 240,000
Net credit sales 1,800,000 1,620,000
Leading extends credit terms requiring full payment in 60 days, with no discount for early
payment.
Required:
i. Compute Leading’s accounts receivable turnover ratio for 2013 and 2014. [1]
ii. Compute the number of days’ sales in receivables for 2013 and 2014 assuming 360 days in
a year. [2]
iii. Comment on the efficiency of Leading’s collection efforts over the two-year period. [1]
7. Why do firms have a Deferred Tax account? Where should that account be shown on the
financial statements? Does the amount of income tax expense presented on the income
statement represent the amount of tax actually paid? Why?

SECTION “C”
[2 Q. × 8 = 16 marks]
Attempt any TWO questions.

8. On January 1, 2014, Iron Inc. presented its Stockholders’ Equity section of the balance sheet as
follows:
Rs.
10% Preferred stock of Rs. 1,000 each,
800 shares issued and outstanding 800,000
Common Stock of Rs. 100 each,
12,000 shares issued and outstanding 1,200,000
Additional paid - in capital – Preferred 160,000
Additional paid-in capital-Common 240,000
Total contributed capital 2,400, 000
Retained earnings 1,600,000
Total stockholders’ equity 4,000,000
 The preferred stock is non-cumulative and non-participating. During the year, 2014, the
corporation performed the following transactions:
i. On June 1,a cash dividend was declared on preferred stock and paid the dividend on July 1.
ii. On August 1, a 10% stock dividend was declared on common stock and distributed the
dividend on September 1. The current market price of the common stock was Rs. 225 per
share.
iii. On October 1, a cash dividend of Rs. 30 per share was declared on common stock and paid
the dividend on November 1.

Required:
i. Pass journal entries for the above transactions relating to declaration and distribution of
cash and stock dividend on 10% preferred stock and common stock. [3]
ii. Develop the Stockholders’ Equity section of the balance sheet on December 31, 2014, the
closing day of the year, assuming the net income for the year as Rs. 1,210,000. [3]
iii. Why do companies declare stock dividend? [2]

9. On December 31,2014, Silver Inc. reported credit balance of allowance for doubtful account as
Rs. 49,200. The amounts of gross receivables, by age, on this date, were as follows:
Category Amount (Rs.)
Current 800,000
Past due:
Less than one month 180,000
One to two months 100,000
More than two months 40,000

On the basis of past experience and analysis of customers’ accounts, the credit department of
the company estimated the following percentage of receivables to be collectible:

Age category Estimated Collectible

Current 95%
Past due:
Less than one month 80%
One to two months 60%
More than two months 40%

Required:
i. Prepare a schedule to estimate the amount of uncollectible account at
December 31, 2014. [3]
ii. Pass journal entry on December 31, 2014, for the estimated amount of bad debts. [1]
iii. Show allowance for doubtful account in the ledger. [1]
iv. Show how accounts receivable would be presented on the December 31, 2014,
balance Sheet. [1]
v. In what respects does the account receivable differ from the note receivable? [2]

10. i. How do accountants classify investments? Describe each type of investment. [4]
ii. What is the primary difference in the accounting requirements for trading securities and
available-for-sale securities? [2]
iii. What will determine whether the shares purchased are classified as trading securities or
available-for-sale- securities? [2]
ANSWER KEY
ACC 202 – Financial Accounting II

1 C
2 C
3 C
4 D
5 C
6 A
7 A
8 B
9 C
10 A

Particulars of learning units and questions:

Question No Learning Unit
1 3
2 1
3 4
4 6
5 5
6 8
7 6
8 7
9 2
10 2