Examination card №11

on the discipline “Financial Accounting II”

for the 3rd year students

1. How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?

2. Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2013. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2013 was $210 million.

Required:

Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2013.

Prepare the journal entry by Tanner-UNF to record interest on December 31, 2013, at the effective (market) rate.

3. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2014, for $190 million. Prepare the journal entry to record the sale.

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

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

   3. 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.

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

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

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

   7. 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}

Examination card №12

on the discipline “Financial Accounting II”

for the 3rd year students

1. What is “comprehensive income”? Its composition varies from company to company but may include which investment-related items that are not included in net income?

2. As a long-term investment at the beginning of the fiscal year, Florists International purchased 25% of Nursery Supplies Inc.’s 8 million shares for $65 million. The fair value and book value of the shares were the same at that time. During the year, Nursery Supplies earned net income of $60 million and distributed cash dividends of $1.25 per share. At the end of the year, the fair value of the shares is $62 million.

Required:

Prepare the appropriate journal entries from the purchase through the end of the year.

1. On January 1, 2013, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method. On June 1, 2015, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2015. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for the bonds being converted.

Required:

1. Prepare the journal entry for the issuance of the bonds by Madison.

2. Prepare the journal entry for the June 30, 2013, interest payment.

3. Prepare the journal entries for the June 30, 2015, interest payment by Madison and the conversion of the

bonds (book value method).

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}