Sample Exam Question 1. In each box of cereal that it produces, Krunchy Cereal Corp includes a special coupon.

The purchaser may redeem 10 coupons for a cheese grater (premium). Each grater costs Krunchy $0.90. In 2012, Krunchy purchased 6,000 graters and sold 200,000 boxes of cereal @ $3.50 per box. Based on past experience, Krunchy estimates that 60% of the coupons will be redeemed. During 2012, 45,000 coupons were presented for redemption. During 2013, 8,000 graters were purchased. Krunchy sold 300,000 boxes of cereal at $3.75 and 90,000 coupons were presented for redemption. Instructions Prepare all the journal entries that would be made regarding the cereal sales and the premium plan in both 2012 and 2013. Question 2 At December 31, 2012, Mandeep Corp has the following shares outstanding (all no par): 150,000 common shares $ 1,150,000 $6 preferred, 5,000 shares $ 500,000 The preferred shares are cumulative and participating up to an additional 4%. Dividends have not been paid since December 31, 2009. Mandeep now wishes to declare a total cash dividend of $240,000. Instructions Prepare the entry for the dividend declaration, separating the dividend into the common and preferred portions. Show all calculations. Question 3 On January 1, 2012, August Industrial Corp. issued $5,000,000 (par value) 8%, 10-year convertible bonds for $5,000,000 cash. Interest is to be paid annually on December 31. Each $10,000 bond carries the right to purchase 100 common shares of August for $20 each during the life of the bond. The current market rate for similar non-convertible bonds is 9%. Instructions a. b. Calculate how much of the bond proceeds to allocate to the bond and how much to the option. August adheres to IFRS. Prepare the journal entry to record the issuance of the bond.

Question 4 The following data relate to Cornwall Ltd for the calendar year 2012: Net income (30% tax rate) $3,500,000 Average number of common shares outstanding during 2012 1,000,000 shares 10%, cumulative convertible preferred shares: convertible into 80,000 common shares $1,600,000 8% convertible bonds; convertible into 75,000 common shares $2,500,000 Stock options, exercisable at $25 per share 90,000 shares All the convertible securities and stock options were outstanding all year. The average market price of the common shares in 2012 was $30. Instructions Calculate (a) basic earnings per share, and (b) diluted earnings per share. Question 5: Courvoisier Corp obtained the following information from the insurance company that administers their employee defined benefit pension plan: For the Year Ended December 31, 2011 2012 Plan assets (at fair value) $1,200,000 $1,680,000 Accrued benefit obligation 1,260,000 1,800,000 Pension expense 480,000 520,000 Employers contribution 530,000 530,000 Unrecognized prior service costs granted Dec 31/11 120,000 110,000 Prior to 2011, the accrued benefit obligation equaled the fair value of the pension plan assets. The corporation uses the deferral and amortization approach. Instructions (a) What descriptions and amounts are reported on the income statement and balance sheet related to pensions for calendar 2011? (b) What descriptions and amounts are reported on the income statement and balance sheet related to pensions for calendar 2012?

Question 6: On January 1, 2012, Garfield Corp (lessor) entered into a noncancellable lease agreement with Odie Corp (lessee) for machinery which was carried in Garfields accounting records at $2,265,000 and had a market value of $2,400,000. Minimum lease payments under the lease agreement, which expires on December 31, 2021, total $3,550,000. Payments of $355,000 are due each January 1. The first payment was made on January 1, 2012 when the lease agreement was finalized. The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor. The effective interest method is being used. Odie expects the machine to have a ten-year life with no residual value, and be depreciated on a straight-line basis. Collectibility of the rentals is reasonably assured, and there are no important uncertainties

surrounding the costs yet to be incurred by Garfield. Both entities are small private corporations that follow ASPE. Instructions (a) From the lessee's viewpoint, what kind of lease is the above agreement? From the lessor's viewpoint, what kind of lease is the above agreement? (b) (c) (d) (e) Ignoring income taxes, what should be the income reported by Garfield from the lease for the year ended December 31, 2012? Ignoring income taxes, what should be the expenses incurred by Odie from this lease for the year ended December 31, 2012? What journal entries should be recorded by Odie Corp on January 1, 2012? What journal entries should be recorded by Garfield Corp on January 1, 2012?

Question 7: Persia Corporation Comparative Balance Sheets December 31 Cash Accounts receivable, net Inventory Land Building Accumulated depreciation Equipment Accumulated depreciation Accounts payable 4% Bonds payable Common shares Retained earnings Additional Data: 1. 2. 3. 4. Net income for the year was $84,000. Cash dividends were paid. Land was sold for $80,000. Old equipment was sold for $70,000. This equipment had cost $150,000 and had accumulated depreciation of $60,000 to date of sale. New equipment was purchased to replace it. $ 2012 43,000 35,000 114,000 120,000 200,000 (50,000) 1,030,000 (118,000) $1,374,000 2011 24,000 38,000 82,000 190,000 200,000 (40,000) 600,000 (94,000) $1,000,000 $ $ 100,000 -0750,000 150,000 $1,000,000

$ 115,000 320,000 750,000 189,000 $1,374,000

Instructions Prepare a statement of cash flows for 2012, using the indirect method. Question 8:

Doncaster Ltd is a diversified corporation which has developed the following information about its five segments: A B C D E Total sales $200,000 $ 850,000 $150,000 $ 160,000 $ 290,000 Operating profit (loss) (125,000) 240,000 20,000 (150,000) (5,000) Total assets 800,000 2,900,000 600,000 1,700,000 2,800,000 Instructions Identify which segments would be considered as reportable segments by applying the following tests: a. Revenue test. b. Operating profit or loss test. c. Assets test.