(ACCT202)[2010](s)midterm~1406^_10052.pdf downloaded by kkwongbg from http://petergao.net/ustpastpaper/down.php?course=ACCT202&id=1 at 2020-10-15 12:22:27. Academic use within HKUST only.

DEPARTMENT OF ACCOUNTING

ACCT 202 Financial Accounting II

Spring 2010
Midterm Exam

Date: March 26, 2010 (Friday)

Time: 7:00pm – 8:30pm (1.5 Hours)

This exam paper contains SIX (6) pages (including this cover page).

Instructions:

1. This is a CLOSED book examination.

2. This exam contains EIGHT (8) questions. ALL questions are compulsory.

3. Answer all questions in the answer booklet provided.

4. Write your name, student number, and lecture section number (L1: Mon 1630-
1750 & Fri 1200-1320; L2: Mon 1330-1450 & Fri 0900-1020) on the cover of
the answer booklet.

5. START EACH QUESTION ON A NEW PAGE. Indicate the question no clearly.

6. SHOW YOUR WORKINGS. If you do not show your workings, you may not
receive full credit for a correct answer and you will not receive any partial
credit for an incorrect answer.

7. Materials, aids and instruments allowed during the examination: present value
tables and electronic calculators ONLY.

8. Budget your time wisely. You have 90 minutes to get a maximum of 90 marks.
On average, use 1 minute to get every 1 mark.

9. You may keep this exam paper. Answers to this exam will be released on
LMES tonight. Please report any problem in the answers immediately.

TURN OFF YOUR MOBILE PHONES!!!

ACCT 202 Spring 2010 Midterm Exam Page 1

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QUESTION 1 (6 marks/minutes) [Objective 1.7]

(a) Bonds may be retired prior to maturity in THREE ways. List them.

(3 marks/minutes)

(b) For each of the ways identified in (a) above, indicate whether a gain or loss
should be recognized on the income statement.

(3 marks/minutes)

QUESTION 2 (7 marks/minutes) [Objective 2.5]

(a) What is the difference between a basic stock option plan and a performance-
based stock option plan in the computation of compensation expense?

(3.5 marks/minutes)

(b) What are the TWO differences in accounting for the obligation under a stock
option plan versus a stock appreciation rights (SAR) plan?

(3.5 marks/minutes)

QUESTION 3 (7 marks/minutes) [Objective 2.9]

(a) Compare and contrast the effects of a stock dividend and a stock split on
stockholders’ equity.

(3 marks/minutes)

(b) Under US GAAP, what is the difference in the accounting for a small stock
dividend versus a large stock dividend? Why is there such a difference?

There is no need to discuss how to distinguish between a small stock dividend

and a large stock dividend.
(4 marks/minutes)

CONTINUE ON NEXT PAGE …

ACCT 202 Spring 2010 Midterm Exam Page 2

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QUESTION 4 (7 marks/minutes) [Objective 3.2]

(a) What criteria must be met for a security to be classified as held to maturity?

(1.5 marks/minutes)

(b) What criteria must be met for a security to be classified as a trading security?

(1.5 marks/minutes)

(c) What criteria must be met for a security to be classified as an available-for-

sale security?

(2 marks/minutes)

(d) What criteria must be met for a security to be classified as an equity method
security?

(2 marks/minutes)

QUESTION 5 (7 marks/minutes) [Objective 3.6]

(a) How is an “other-than-temporary” decline in the value of investments recorded?

(2 marks/minutes)

(b) After an “other-than-temporary” decline in the value of investments has been

recorded, can subsequent reversal (that is, increase) in the value of the
investments be recognized?

If no, explain why not.

If yes, explain how.

(5 marks/minutes)

CONTINUE ON NEXT PAGE …

ACCT 202 Spring 2010 Midterm Exam Page 3

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QUESTION 6 (20 marks/minutes) [Objectives 1.6 & 1.7]

On January 1, 2010, Company A issued $700,000 of 10 percent bonds to yield 8

percent. Interest is payable semiannually on July 1 and January 1. The bonds
mature in ten years, on January 1, 2020. Company A is a calendar-year corporation.

REQUIRED:

(a) Determine the issue price of the bonds.

(4 marks/minutes)

(b) Prepare an amortization table through the first two interest periods using the
effective-interest method.

(4 marks/minutes)

(c) Prepare the journal entries for Company A to record bond-related transactions
as of the following dates:

(i) January 1, 2010

(ii) July 1, 2010

(iii) December 31, 2010

(iv) January 1, 2011

(v) December 31, 2019 (the carrying value of the bonds as at the close of
July 1, 2019 is $706,749)

(vi) January 1, 2020

If no entry is required, state “no entry”.

(12 marks/minutes)

CONTINUE ON NEXT PAGE …

ACCT 202 Spring 2010 Midterm Exam Page 4

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QUESTION 7 (13 marks/minutes) [Objective 2.2]

The following transactions relate to the stockholders' equity transactions of Company

B for its initial year of existence.

(a) Jan. 7 Articles of incorporation are filed with the Companies Registry.
The articles of incorporation authorized the issuance of 10,000
shares of $50 par value preferred stock and 200,000 shares of
$10 par value common stock.

(b) Jan. 28 40,000 shares of common stock are issued for $14 per share.

(c) Feb. 3 80,000 shares of common stock are issued in exchange for land
and buildings that have an appraised value of $250,000 and
$1,000,000, respectively. The stock traded at $15 per share on
that date on the stock market.

(d) Sep. 12 Received subscriptions for 10,000 shares of preferred stock at

$53 per share. A 40 percent down payment accompanied the
subscriptions. The balance is due on October 1.

(e) Oct. 1 Received the final payment for 10,000 shares of preferred stock.

REQUIRED:

Prepare journal entries to record the foregoing transactions. Identify the entries by
letters (a) – (e).

If no entry is required, state “no entry”.

(13 marks/minutes)

CONTINUE ON NEXT PAGE …

ACCT 202 Spring 2010 Midterm Exam Page 5

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QUESTION 8 (23 marks/minutes) [Objectives 3.3, 3.5, 3.7 & 3.8]

In 2010, Company C purchased stock as follows:

 Purchased 2,000 shares of Company D common stock (par value $20) at $45
per share.

 Purchased 800 shares of Company E common stock (par value $10) at $71
per share.

At December 31, 2010 & 2011, the market values of the securities were as follows:

Market Value, Market Value,

Security Dec 31, 2010 Dec 31, 2011
Company C $71 $73
Company D 41 47
Company E 72 69

Company C classifies the investment in Company D as trading security and the

investment in Company E as available-for-sale security.

The fiscal year of Company C ends on December 31.

REQUIRED:

For all realized or unrealized gains and losses accounts, indicate whether they are
income statement accounts (I/S) or equity accounts (equity).

(a) Prepare all entries relating to the investments in common stock for 2010.
(8.5 marks/minutes)

(b) Prepare the entry to record the sale of 200 shares of Company E common
stock on January 15, 2011, at $74 per share.
(2.5 marks/minutes)

(c) Prepare the entry to reclassify the remaining 600 shares of Company E
common stock from available-for-sale securities to trading securities on
January 31, 2011. The stock was selling at $67 per share on that date.
(6 marks/minutes)

(d) Prepare the year-end adjustment(s) for 2011.

(6 marks/minutes)

 END OF MIDTERM EXAM 

ACCT 202 Spring 2010 Midterm Exam Page 6