INTERMEDIATE ACCOUNTING II (ACCT 33)

Answer the following questions given below:

Question 1

In 2016 Arbitrage Money Management Ltd had a Basic EPS of sh. 1.07 based on earnings of sh. 1,070,000 and 1,000,000 ordinary sh. 1.00 shares. It also had in issue sh. 400,000 15% convertible loan stock which is convertible in two years' time at the rate of 4 ordinary shares for every sh. 5.00 of stock. The tax rate is 30%. In 2016 the gross profit of sh. 2,000,000 and expenses of sh. 500,000 were recorded, including interest payable of on the loan stock. Calculate the Diluted EPS. How much would an investor pay to purchase a bond today, which is redeemable in four years for its par value or face value of Kes 10m and pays an annual coupon of 5% on the par value? The required rate of return (or yield) for a bond in this risk class is 4%.

Question 2

Pwani Construction Company has won a contract to construct an office block for the Mombasa County on January 1, 2015, at a contract price of sh.100 million. The contract is expected to be completed in 3 years. The estimated contract costs are sh.80 million. During the first two years, the following transpired (all figures in Sh. Millions) Year Costs incurred Estimated costs to complete Billings Cash received 2015 20 60 30 25 2016 40 50 50 40 Required: Show an extract of the Income statement and Balance sheet indicating any amounts related to the contract.

Question 3

Mutidwa limited offered 50,000 ordinary shares of shs. 1 for sh.1.25 payable as under Shs 0.25 on application Shs. 0.50 on the allotment (including premium) Shs. 0.25 on first call Shs. 0.25-second call Applications were received for 60,000 shares. An application for 10,000 shares was rejected. Allotment money due was received, the first call was after one month and the second call after two months. All money due on the first and second calls was received except for 1000 shares for Ali who paid for the first call only. These shares were forfeited after three months and then reissued for shs. 0.70 each as fully paid. Show the necessary journal entries to record the above transactions. Prepare statements of financial position as at the end of the period.

Question 4

Kamakawaida ltd manufactures electronic appliances such as T.V, which made sales of shs. 2 million to Adel ltd on 15th February 2015 subject to product warranties. Kamakawaida ltd estimates that 5% of its products required warranty payments. On 22 November 2014, Kamakawaida ltd warranty payment totaled shs. 90,000 for the year 2015. Prepare the relevant journal entries.

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