ACCT 2013 Principles of Accounting

Assignment 1

This assignment consists of 2 questions (4 pages). 25 marks are

allocated to each of the questions:

Instructions to students:

1. Hand-write answers on A4 size white papers.

2. Answers should be supported by workings/ detailed calculations where

appropriate.

3. Upload completed work to iSpace by 5.00 pm, Friday, November 6, 2020

or another date specified by your teacher. Late submission will not be
graded.

4. Please submit both hard copy and soft copy (see note)

5. This is an individual assignment.

Note: Upload soft copy to iSpace, hard copy hand to your course teacher per
his/her instruction. Only word or pdf file format is allowed, photos/pictures are
NOT accepted. (Hand-written assignment needs to be scanned and saved as
word or pdf file for the upload).
Question 1 (Total 25 marks)

On January 1, 2018, Bolivia Ltd issued $200,000 of its 3-year, 8% bonds. The bonds
were sold for $189,848 when the market interest rate was 10%. Interest is payable
semiannually on June 30 and December 31.

Required:
(a) Prepare an amortization table using the effective interest method in the following
format for the first 2 years after issuance.

Note: Round your answer to the nearest dollar.

(10 marks)

(b) Prepare the journal entries to record the issuance of bonds by Bolivia Ltd on January
1, 2018. (3 marks)

(c) Prepare the journal entries to record first interest payment on June 30, 2018 using
the effective interest method. (3 marks)

(d) Compute the total bond interest expense to be recognized over the bonds’ life based
on the information given. (3 marks)

(e) Prepare the journal entries to record retiring of the bonds by paying a market price of
$190,000 on January 1, 2020 immediately after the 2019 interest payment.
(4 marks)

(f) Identify two advantages of bond financing. (2 marks)

(Total 25 marks)
Question 2 (Total 25 marks)

ABC Limited stared investments in 2018. Below are the transactions and events occurred in the
years 2018 and 2019.

Date Transactions / Events

2018
Mar 01 Purchased 7,000 ordinary shares of Apple Tech at $15.00 per
share plus $1,050 broker’s commission. ABC Limited intended
to hold the shares as long-term Available-for-Sale investment
(AFS).
Mar 31 Purchased 30,000 ordinary shares of QQ Game at $12.00 per
share plus $1,800 broker’s commission. Held as long term AFS.
Jun 20 Purchased 20,000 shares of Worldwide Telecom ordinary
shares at $15.00 per share plus $1,500 broker’s commission.
The shares owned by ABC Limited represent 40% of
Worldwide Telecom’s total issued shares.
Sep 10 Purchased 8,500 ordinary shares of B2C Online at $32.00 per
share plus $1,360 broker’s commission. ABC intended to hold
the investment for short term trading (HFT).
Oct 21 Sold 4,000 ordinary shares of Apple Tech, at $18.50 per share
less $370 broker’s commission.
Dec 31 Worldwide Telecom reported net earnings of $50,000 for the
year.

2019
Jan 28 Worldwide Telecom declared and paid 60% of the 2018 reported
earnings for cash dividends.
Feb 15 Sold all shares in B2C Online at $35.00 each less broker’s
commission of $1,485.

Additional Information

ABC Limited has financial year end at 31 Dec. All the investment securities are traded
on the stock market and the following are their year-end prices.

2018 2019
Securities Dec 31 Dec 31
Apple Tech $18.00 $20.00
QQ Game $11.90 $11.20
B2C Online $33.80 -
Required:

Part A

i. Prepare journal entries to record the above transactions and events occurred in
2018.
(12 marks)

ii. Prepare journal entries to account for fair value adjustment for the Available-for-
Sale (AFS) investments at the year end of 2018. [Show your working / calculation
to support]
(2 marks)

iii. Prepare journal entries to record the fair value adjustment for Held-for-Trading
(HFT) investments at the year end of 2018.
(1 mark)

iv. Prepare journal entries to record the transactions/events happened in 2019.

(4 marks)

v. Prepare journal entries to account the fair value adjustment for the Available-for-
Sale (AFS) investments at the year end of 2019. [Show your working / calculation
to support]
(1 mark)

Part B

a) What is the difference in accounting for unrealized gain (loss) and fair value
changes between Held-for-Trading investments and Available-for-Sale
investments?
(3 marks)

b) State and briefly describe the accounting method for investment in an

investee’s shares between 20% to 50%.
(2 marks)

---------- End -----------