Examination card № 19

on the discipline “Financial Accounting II”

for the 3rd year students

1. What is push down accounting?

2. On January 4, 2013, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery’s operations. Runyan received dividends of $2.00 per share on December 15, 2013, and Lavery reported net income of $160 million for the year ended December 31, 2013. The market value of Lavery’s common stock at December 31, 2013 was $31 per share. On the purchase date, the ©Dr. Chula King All Rights Reserved book value of Lavery’s net assets was $800 million and:

a) The fair value of Lavery’s depreciable assets, with an average remaining life of six years exceeded their book value by $80 million; and

b) The remainder of the excess of the cost of the investment over the book value of the net assets purchased was attributable to goodwill.

Required:

Prepare all appropriate journal entries related to the investment during 2013, assuming Runyan accounts for this investment by the equity method.

3. Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently.

1. On June 30, 2013, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $10,000 on the purchase date and the balance in five annual installments of $8,000 on each June 30 beginning June 30, 2014. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment?

2. Johnstone needs to accumulate sufficient funds to pay a $400,000 debt that comes due on December 31, 2018. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2013.

Lecturer A. Kaldarova ______________________

Confirmed at the meeting of the department of "Socio-Economic Disciplines"

Minute №____ from ____ of 2015.

The dean of the faculty "International Educational Programs"

Ronald Voogdt _____________

^{name signature}

Examination card № 20

on the discipline “Financial Accounting II”

for the 3rd year students

1. Explain compound interest.

2. American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2013. In payment for the $4 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 10%.

Required:

1. Prepare the journal entry for American Food Services’ purchase of the machine on January 1, 2013.

2. Prepare an amortization schedule for the four-year term of the installment note.

3. Prepare the journal entry for the first installment payment on December 31, 2013.

4. Prepare the journal entry for the third installment payment on December 31, 2015.

3. The lease agreement and related facts indicate the following:

a. Leased equipment had a retail cash selling price of $300,000. Its useful life was five years with no residual value.

b. Collectibility of the lease payments by the lessor was reasonably predictable and there were no costs to the lessor that were yet to be incurred.

c. The lease term is five years and the lessor paid $265,000 to acquire the equipment (sales-type lease).

d. Lessor’s implicit rate when calculating annual lease payments was 8%.

e. Annual lease payments beginning January 1, 2013, the inception of the lease, were $69,571.

f. Costs of negotiating and consummating the completed lease transaction incurred by the lessor were $7,500.

Required:

Prepare the appropriate entries for the lessor.

Lecturer A. Kaldarova ______________________

Confirmed at the meeting of the department of "Socio-Economic Disciplines"

Minute №____ from ____ of 2015.

The dean of the faculty "International Educational Programs"

Ronald Voogdt _____________

^{name signature}