RIFT VALLEY UNIVERSITY

GADA CAMPUS
DEPARTMENT OF
ACCOUNTING AND FINANCE

Financial Accounting II- AcFn 312

Issue Date: June 19, 2020.
Submission Date: June 22, 2020.

 Name_______________________________________ ID No.________________ Group________

 Program/Division:
Regular Extension Add/Drop

Individual Project Work

Instruction: Dear students in doing your project work successful you have to:
(1) Devote time specifically to read the handouts (modules, or other references notes or books).
(2) Build individual accountability and do your project work thoroughly and copying from
others disqualifies results.
(3) You are expected to submit the project work in Hard Copy in to Four days after the date
you received to the Instructor’s.
(4) Don’t forget writing your full Name, Student Id No. and Group/Department.

Section to be filled by the Instructor:

Project Wor k Weight in % Scored Result
Q# 1 8%
Q# 2 6%
Q# 3 14 %
Q# 4 12 %
Total 40 %

Financial Accounting – II AcFn - 312 Page 1

1. (Long-Term Debt) Awash Company issued $100,000 of 7% term bonds on January 1, 2019, due on
January 1, 2024. The market rate of interest for these bonds is 8%. Interest is payable annually on
December 31.

Required:
Assume that the company uses the effective-interest method of amortizing bond discount.
a) Calculate the amount of interest that is actually paid annually (2 point).
b) Compute the proceeds from issuance of the bonds and discount on bonds payable on January 1,
2019 (2 point).
c) Prepare a bond discount amortization schedule for 2019 - 2024 (2 point).
d) Prepare the journal entries to records the following transaction:
i) The issuance of bonds on January 1, 2019 (1 point).
ii) The payment of interest and the amortization of the discount on Dec. 31, 2019 (1 point).

2. (Capitalization of Interest) Haron Furniture Company started construction of a combination office and
warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2017. Haron
expected to complete the building by December 31, 2017. Haron has the following debt obligations
outstanding during the construction period.
 Construction loan—12% interest, payable semiannually, issued
December 31, 2016 $ 2,000,000
 Short-term loan—10% interest, payable monthly, and
Principal payable at maturity on May 30, 2018 1,400,000
 Long-term loan—11% interest, payable on January 1 of each year.
Principal payable on January 1, 2021 1,000,000

Required:
(a) Assume that Haron completed the office and warehouse building on December 31, 2017, as
planned at a total cost of $5,200,000, and the weighted-average amount of accumulated
expenditures was $3,600,000. Compute the avoidable interest on this project (3 point).

(b) Compute the depreciation expense for the year ended December 31, 2018. Haron elected to
depreciate the building on a straight-line basis and determined that the asset has a useful life of
30 years and a salvage value of $300,000 (3 point).

Financial Accounting – II AcFn - 312 Page 2

3. (Retail Inventory Method) Presented below is information related to Sony Electronics Company.
Cost Retail
Beginning inventory, January 1 $ 58,000 $ 100,000
Purchases (net) 122,000 200,000
Markups, net -- 20,000
Markdowns, net -- 30,000
Sales -- 186,000

Required:
(a) Compute the ending inventory at retail (2 point).
(b) Compute a cost-to-retail percentage (ratio) under the following conditions (4 point):
1. Excluding both markups and markdowns.
2. Excluding markups but including markdowns.
3. Excluding markdowns but including markups.
4. Including both markdowns and markups.
(c) Which of the methods in (b) above (1, 2, 3, or 4) does the following? (2 point).
1. Provides the most conservative estimate of ending inventory and an approximation of LCNRV.
2. Is used in the conventional retail method.
(d) Compute ending inventory at LCNRV (2 point).
(e) Compute cost of goods sold based on (d) (2 point).
(f) Compute gross profit (margin) based on (d) (2 point).

4. (Depreciation Computations—Four Methods) Zebra Furniture Company purchased a new machine

for its assembly process on January 1, 2019. The cost of this machine was $880,000. The company
estimated that the machine would have a residual value of $80,000 at the end of its service life. Its life
is estimated at 4 years, and its working hours are estimated total activity level at 8,000,000 hours and
5,000,000 respectively. Activity rate 0.10 hours used and 0.16 units produced respectively. Year-end
is December 31.

Required:
Calculate the depreciation expense of each of the 4 years under the following methods:
(a) Activity (output production) assuming the following actual production:
(a)-1. Hours used 1,440,000, 2,000,000, 2,400,000, and 2,160,000 respectively (3 point).
(a)-2. Units produced 1,500,000, 2,000,000, 1,000,000, and 500,000, respectively (3 point).
(b) Straight line depreciation (2 point).
(c) Sum-of-the-years' digits (2 point).
(d) Double declining balance (2 point).
***************************//****************************
Financial Accounting – II AcFn - 312 Page 3