Advanced Financial Accounting Spring 2016 JNU

Accounting for Lease
Q.No.1.
Shea Industries, a dental supplies facilitator, borrowed $480,000 cash on October 1,
2013. West Bank made the loan in accordance with a short-term revolving credit
agreement. Shea issued a 7-month, 12% promissory note with interest payable at
maturity. Sheas fiscal period is the calendar year.
Required:
1. Prepare the journal entry for the issuance of the note by Shea Industries.
Show calculations.
2. Prepare the appropriate adjusting entry for the note by Shea Industries on
December 31, 2013. Show calculations.
3. Prepare the journal entry for the payment of the note by Shea at maturity.
Show calculations.
Q.No.2.
Kelly Industries issued 11% bonds, dated January 1, with a face value of $100
million on January 1, 2013. The bonds mature in 2018 (10 years). Interest is paid
semiannually on June 30 and December 31. For bonds of similar risk and maturity
the market yield is 12%. On December 31, 2013, the fair value of the bonds was
$95,000,000 as determined by their market value in the over-the-counter market.
Required:
1. Determine the price of the bonds at January 1, 2013. Show calculations.
2. Prepare the journal entry to record their issuance by Kelly Industries on
January 1, 2013.
3. Prepare the journal entry to record interest on June 30, 2013 (at the effective
rate). [You are not required to prepare an amortization schedule.] Show
calculations.
4. Prepare the journal entry to record interest on December 31, 2013 (at the
effective rate). [You are not required to prepare an amortization schedule.]
Show calculations.
5. Prepare the journal entry to adjust the bonds to their fair value for
presentation in the December 31, 2013, balance sheet. Show calculations.
Q.No.3.
Gold Plate Electronics sells and leases business equipment to customers. On
January 1, 2013, Gold Plate leased a computer to a local merchandiser. The lease
agreement required quarterly payments of $800 beginning January 1, 2013, the
inception of the lease, and each quarter thereafter (April 1, July 1, and October 1)
for a two-year lease term. The expected technological life of the computer is 2 1/2
years. Gold Plates quarterly interest rate for determining payments was 3%
(approximately 12% annually). Gold Plate had paid a supplier $4,500 for the
computer.
Required:
1. Calculate the amount of dealers profit that Gold Plate would recognize in this
sales-type lease. Round to nearest dollar. Show calculations.
2. Prepare the appropriate entries for Gold Plate on January 1, 2013. Round to
nearest dollar. Show calculations.
3. Prepare the appropriate entries for Gold Plate on April 1, 2013. Round to nearest
dollar. Show calculations.
Page 1 of 38
Solutions
Problem I
1. Prepare the journal entry for the issuance of the note by Shea
Industries.
Cash ...................................... 480,000
Notes payable..................... 480,000
2. Prepare the appropriate adjusting entry for the note by Shea
Industries on December 31, 2013.
Interest expense ($480,000 x 12% x 3/12)14,400
Interest payable.................. 14,400
3. Prepare the journal entry for the payment of the note by Shea at
maturity.
Interest expense ($480,000 x 12% x 4/12)19,200
Interest payable (from adjusting entry) 14,400
Notes payable (face amount). 480,000
Cash (total)......................... 513,600
Page 2 of 38
Problem II
1. Determine the price of the bonds at January 1, 2013.
Interest $5,500,000 x 11.46992 (from Table 2) =$63,084,560

n=20, i=6%
Principal$100,000,000 x 0.31180 (from Table 4) =31,180,000
n=20, i=6%
Present value (price) of the bonds $94,264,560
2. Prepare the journal entry to record their issuance by Kelly

Industries on January 1, 2013.
Cash (price determined above) 94,264,560

Discount on bonds (difference) 5,735,440
Bonds payable (face value) 100,000,000
3. Prepare the journal entry to record interest on June 30, 2013 (at the
effective rate).
Interest expense (6% x $94,264,560) 5,655,874

Discount on bonds payable (difference) 155,874
Cash (5.5% x $100,000,000) 5,500,000
4. Prepare the journal entry to record interest on December 31, 2013
(at the effective rate).
Interest expense (6% x [$94,264,560+155,874)5,665,226

Discount on bonds payable (difference) 165,226
Cash (5.5% x $100,000,000) 5,500,000
5. Prepare the journal entry to adjust the bonds to their fair value
for presentation in the December 31, 2013, balance sheet.
The interest entries increased the book value from $94,264,560 to
$94,585,660. To increase the book value to $95,000,000, Rapid needed
the following entry:
Unrealized holding loss 414,340

Fair value adjustment ($95,000,000 94,585,660) 414,340
Page 3 of 38
Problem III
Present value of quarterly rental payments ($800 x 7.23028) $5,784

(from Table 6)
n=8, i=3%
Selling price $5,784

minus
Computers cost (4,500)
equals
Dealers profit $1,284
January 1, 2013
Lease receivable (calculated above)......... 5,784

Cost of goods sold (lessors cost)............. 4,500
Sales revenue (calculated above)......... 5,784
Inventory of equipment (lessors cost). 4,500
Cash (lease payment)............................... 800

Lease receivable................................... 800
April 1, 2013
Cash (lease payment) 800

Lease receivable 650
Interest revenue (3% x [$5,784 - 800])
Page 4 of 38
Earnings Per Share
Page 5 of 38
Earnings per Share (EPS) Math
Question #1:
The company XYZ has a convertible bond issue: 100 bonds, $1,000 par value,
yielding 10%, issued at par for the total of $100,000. Each bond can be converted
into 50 shares of the common stock. The tax rate is 30%. XYZs weighted average
number of shares, used to compute basic EPS, is 10,000. XYZ reported a Net income
of $12,000, and paid preferred dividends of $2,000. What is the basic EPS and
diluted EPS?
Solution:
1) Compute basic EPS:
i. Basic EPS = (12,000 2,000) / (10,000) = $1.00
2) Compute diluted EPS:
i. Find the adjustment to the denominator: 100 * 50 = 5,000
ii. Find the adjustment to the numerator: 100 * $1000 * 0.1 * (1 - 0.3) = $7,000
3) Find diluted EPS:
i. Diluted EPS = (12,000 2,000 + 7,000) / 10,000 + 5,000 = $1.13
If Basic EPS > the fully diluted ESP, then the security is anti-dilutive. In this
case, Basic EPS = $1.00 is less than the fully diluted ESP, and the security is not
anti-dilutive.
Question #2:
The company ABC has a convertible bond issue: 200 bonds, $2,000 par value,
yielding 10%, issued at par for the total of $2, 00,000. Each bond can be converted
into 100 shares of the common stock. The tax rate is 25%. ABCs weighted average
number of shares, used to compute basic EPS, is 20,000. ABC reported a Net
income of $24,000, and paid preferred dividends of $4,000. What is the basic EPS
and diluted EPS?
Question #3:
The company Pearson has a convertible bond issue: 1000 bonds, $10,000 par value,
yielding 15%, issued at par for the total of $10, 00,000. Each bond can be converted
into 500 shares of the common stock. The tax rate is 20%. Pearsons weighted
average number of shares, used to compute basic EPS, is 1, 00,000. Pearson
reported a Net income of $1, 20,000, and paid preferred dividends of $20,000.
What is the basic EPS and diluted EPS?
Question # 4:
At December 31, 2009 the financial statements of Public Company Limited include
the following:
Net income for 2009 $5,30,000
Common stock $10 par.
Share Outstanding on 01.01.2009 1,50,000
shares
Share retired for cash on 01.02.2009 24,000 shares
Shares sold for cash on 01.09.2009 18,000 shares
2 for 1 stock split on July 23 preferred stock, 10% $10 par, $70,000
cumulative, non-convertible
Preferred stock, 8% $1 par, cumulative, convertible 4,000 shares $1,00,000
of common stock
Page 6 of 38
Common stock warrants outstanding for 4,000 shares of common stock, the
exercise price is $15.
Additional data:
The market price of common stock average $20 during 2009.
The convertible preferred stock had been issued at par in 2007.
The tax rate for the year was 40%.
Required:
(1) Basic Earnings per share;
(2) Diluted Earnings per share for the year ended December 31, 2009.
Question #5:
SPL had the following information of their balance sheet at 31 st December, 2009:
Particulars Amount($) Amount($)
Long-term debt:
Notes payable 6% 10,00,000
5% $1,000 convertible Bonds 50,00,000
Total Long-term debt 60,00,000
Stock holder equity:
6% cumulative, convertible preferred stock, par value 5,00,000
$10; 2,00,000 shares authorized and 50,000 shares
issued and outstanding
Common stock par value $1; 10,00,000 authorized and 2,50,000
2,50,000 shares issued and outstanding
Additional paid in capital 1,00,00,000
Retained earnings 27,50,000
Total Stock holder equity 1,37,50,000
Other notes and assumptions:
(a) Options were granted in May 2008 to purchase 20,000 shares of common
stock at $10 per share.
(b) The average market price of SPL common stock in 2009 was $20 per share.
No options are exercised during 2009.
(c) The convertible bonds are each convertible for 50 shares of common stock.
No bonds were converted in 2009.
(d) Each share of the convertible preferred stock can be converted to 4 shares
of common. No stock was converted in 2009.
(e) SPLs 2009 net income was $5, 00,000.
(f) SPLs 2009 average income tax rate was 40%.
(g) The weighted average number of shares of common stock outstanding was
2, 50,000.
Instruction:
(a) Compute the basic earnings per share (EPS).
(b) Compute the per share effect of all potentiality dilutive securities.
(c) Compute the Diluted earnings per share.
(d) What would be the outcome if convertible bonds were converted for 25 shares
rather than 50?
Question # 6:
Ovi Transportation Company has the following outstanding stocks and bonds at January
01, 2009. All securities had been sold at par or face value:
Date of issue Type of Par or Face No. of shares or Conversion terms
securities value Total face value
Page 7 of 38
2007-2008 Common $0.25 2,00,000 None
stock
01 May 2003 12% 1,000 $7,50,000 None
debentures
01 January 6% 100 40,000 4 shares of
2007 cumulative common for each
preferred preferred shares
stock
01 January 6% 1,000 $10,00,000 15 shares of
2008 debentures common for each
$1,000 debentures.
30 June 2008 10% 1000 $6,00,000 30 shares of
debentures common for each
$1,000 debentures.
31st December 8% 50 12,500 None
2008 cumulative
preferred
stock
Ovi also had stock options outstanding at January 1, 2009 for the purchase of
20,000 shares of common. During 2009 options were granted for an additional
40,000 shares. The terms of these stock options are as follows:
Date of Exercisable Exercise Number of
issue Date Price Options
01 January- 01 October $30 20,000
2006 2009
01 October 30 June 2010 60 40,000
2009
Common stock market prices for 2009 were as follows:
Average for the year $61
Average for first 9 months of year 55
October 1, price 62
December 31, price 65
During 2009 Ovi issued the following common stock:
April 01 30,000 shares sold at $56.
October 1 20,000 shares issued from exercise of January 1, 2006 options.
On December 1, 2009 Ovi paid a full years dividend on the 6% preferred stock and
on the 8% preferred stock. Assume that the company had net income of $10,
26,000 all from continuing operations. The income tax rate is 30%.
Required:
(b) Determine whether options and convertible securities are dilutive.
Question # 7
AB & Company have the following outstanding stocks and bonds at
January 1, 2009.
(1) Common stock, $25 par, 1, 00,000 issued and outstanding.
(2) 6% cumulative preferred stock, $100 par, 20,000 shares issued and
outstanding; convertible into 4 shares of common for each preferred share.
(3) 8% cumulative preferred stock, $50 par, 6,250 shares issued and
outstanding;
Page 8 of 38
(4) 12% Bonds, $1,000 face value, 375 bonds issued and outstanding
(5) 6% Bonds, $1,000 face value, 500 bonds issued and outstanding convertible
into 15 shares of common for each $1,000 bond.
(6) 10% Bonds, $1,000 face value, 300 bonds issued and outstanding convertible
into 30 shares of common for each $1,000 bond.
AB & Company also had stock options outstanding as follows:
2006 2009
01 October July 1, 2011 30 20,000
2009
Stock market price for Common stock of AB & Company for the year 2009 were as
follows:
October 1, price 32
During the year 2009 AB & Company issued the following common stock:
On December 1, 2009 AB & Company paid a full years dividend on the 6%
preferred stock and on the 8% preferred stock. Assume that the company had net
income of $5, 13,000 all from continuing operations. The income tax rate is 30%.
Required:
(b) Determine whether options and convertible securities are dilutive.
Question # 8
USML provides the following selected financial information for the financial year
ended 31st December 2009:
Particulars Amount ($)
Common stock 10,00,000 shared outstanding 60,00,000
Share premium 40,00,000
9% cumulative preferred stock, 20,000 shares 20,00,000
12% convertible Bond payable, $100 par value 1,00,00,000
8% convertible Bond payable, 20,000 bonds 2,00,00,000
10% non convertible notes payable, $1,000 par 10, 00,000
Retained Earnings 80, 00,000
Total 5, 10, 00,000
Average market interest rate 15%.
Additional data:
(a) Preferred stock dividends were not declared for the year ended 31 st
December, 2009.
(b) 2, 50,000 common stock were issued at the end of September 2005.
(c) As on July 1, 2005 stock dividend were declared and issued at 2 for 4 shares
held.
(d) 9% preferred stock is convertible into common stock at 1 for 1.
Page 9 of 38
(e) Each 12% bond is convertible into 1 common stock.
(f) Each 8% bond is convertible into 10 common stock
(g) Options were granted in 2009 to purchase 20,000 common stock at $12
each.
(h) The average price per share was $15 and the year end price was $16.
(i) Net income and income tax rate were $48, 00,000 and 40% respectively.
Required:
(a) Compute the primary earnings per share (EPS).
(b) Compute the fully Diluted earnings per share.
Question # 9
Mr. Saiful Haque, Controller of Accounts, at Dash Pharmaceuticals Company Limited,
a public limited company, is currently preparing the calculation for basic and diluted
earnings per share and the related disclosure for Dash Pharmaceuticals Company
Limited external financial statements. Below is selected financial information for the
fiscal year ended June 30, 2009.
Dash Pharmaceuticals Company Limited
Selected Statement of Financial Position Information
June 30, 2009.
Particulars Amount ($)
Long-term debt:
Notes payable 10% 10,00,000
7% convertible Bonds payable 50,00,000
10% bonds payable 60,00,000
Total Long-term debt 1,20,00,000
Stock holder equity:
Preferred stock, 8.50% cumulative, $50 par value, 1,00,000 shares 12,50,000
authorized, 25,000 shares issued and outstanding
Common stock par value $1; 1,00,00,000 authorized and 10,00,000
10,00,000 shares issued and outstanding
Additional paid in capital 40,00,000
Retained earnings 60,00,000
Total Stock holder equity 1,22,50,000
The following transactions have also occurred at Dash:
(a) Options were granted in May 2007 to purchase 1, 00,000 shares at $15 per
share.
(b) Although no options were exercised during 2004, the average price per
common share during fiscal year 2009 was $20 per share.
(c) Each bond was issued at face value. The 7% convertible debenture will convert
into common stock at 50 shares per $1,000 bond. It is exercisable after 5 years
and was issued in 2008.
(d) The 8.50% preferred stock was issued in 2007.
(e) There were no preferred dividends in arrears; however, preferred dividends
were not declared in fiscal year 2009.
(f) The 10, 00,000 shares of common stock were outstanding for the entire 2009
fiscal year.
(g) Net income for fiscal year 2009 was $15, 00,000.
(h) The average income tax rate was 40%.
Instruction:
For the fiscal year ended June 30, 2009, Dash Pharmaceuticals Company Limited
Page 10 of 38
(b) Compute the Diluted earnings per share.
Question # 10
Data for the Allison Powder Company at the end of 2009 is listed below. All bonds
are convertible as indicated and were issued at their amounts.
Description of Amount Date At corporate Conversion Terms
Bonds ($) issued Bond Yield
on Date
issued
10 years-6% 5,00,00 01.01.20 9.50% 80 shares of common for
convertible 0 03 each $1,000 bond.
bonds
20 years-7% 10,00,0 01.01.20 8.50% 40 shares of common for
bonds
25 years-9.50% 8,00,00 30.06.20 14.25% 100 shares of common for
bonds
Common shares outstanding at December 31, 2008
6,00,000
Net income for fiscal year 2009 was $15, 25,000.
The average income tax rate was 40%.
Instruction:
(a) Compute the primary earnings per share (EPS) for 2009, assuming that no
additional shares of common stock were issued during the year.
(b) Compute the Diluted earnings per share assuming that no additional shares of
common stock were issued during the year.
Question # 11:
Dancy Company has the following outstanding stocks and bonds at January 01, 2009.
All securities had been sold at par or face value:
Date of issue Type of Par or Face No. of shares or Conversion terms
securities value Total face value
2007-2008 Common $0.25 2,00,000 None
stock
01 May 2003 12% 1,000 $7,50,000 None
debentures
01 January 6% 100 40,000 4 shares of
2007 cumulative common for each
preferred preferred share
stock
01 January 6% 1,000 $10,00,000 15 shares of
2008 debentures common for each
$1,000 debenture.
30 June 2008 10% 1000 $6,00,000 30 shares of
debentures common for each
$1,000 debenture.
st
31 December 8% 50 12,500 None
2008 cumulative
preferred
stock
Page 11 of 38
Dancy also had stock options outstanding at January 1, 2009 for the purchase of
20,000 shares of common. During 2009 options were granted for an additional
40,000 shares. The terms of these stock options are as follows:
2006 2009
01 October 30 June 2010 60 40,000
2009
Common stock market prices for 2009 were as follows:
October 1, price 62
During 2009 Dancy issued the following common stock:
On December 1, 2009 Dancy paid a full years dividend on the 6% preferred stock
and on the 8% preferred stock. Assume that the company had net income of $10,
26,000 all from continuing operations. The income tax rate is 30%.
Required:
(d) Compute the basic earnings per share (EPS).
(e) Determine whether options and convertible securities are dilutive.
(f) Compute the Diluted earnings per share.
Question # 12:
Somali Corporation capital structure is as follows:
Particulars December 31, December 31, 2008
2009
Outstanding shares common stock 3,36,000 2,80,000
Non-convertible, non-cumulative 10,000 10,000
preferred stock
10% convertible bonds 10,00,000 10,00,000
The following additional information is available:
(a) On September 1, 2009, Somali sold 56,000 additional shares of common stock.
(b) Net income for the year ended 31st December 2009 was $8, 60,000.
(c) During 2009, Somali declared and paid dividends of $5 per share on its
preferred stock.
(d) The 10% bonds are convertible into 40 shares of common stock for $1,000
bond, were not considered common stock equivalents at the date of issuance.
(e) Unexercised options to purchase 30 shares of common stock at $22.50 per
share were outstanding at the beginning and end of 2009
(f) The average market price of Somalis common stock was $36 per share during
2009.
(g) The market price was $33 per share at December 31, 2009.
(h) Warrants to purchase 20,000 shares of common stock at $38 per share were
attached to the preferred stock at the time of issuance. The warrants, which
expire on December 31, 2012, were outstanding at December 31, 2009.
(i) Somalis effective income tax rate was 40% for 2008 and 2009.
Required:
Page 12 of 38
(a) Compute the simple earnings per share (EPS).
(b) Primary earnings per share (EPS).
Page 13 of 38
On January 1, 2013, Field Company had outstanding 200 million shares of common
stock and 20 million shares of 7.5% cumulative preferred stock (par $10).
On March 1, 2013, Field sold and issued an additional 24 million shares of
common stock. The company distributed a 10% common stock dividend on May 5.
On November 1, six million shares were retired in keeping with the companys long-
term share repurchase plan.
Net income was $465 million. The tax rate for the year was 40%.
At year-end, there were incentive stock options outstanding for 12 million
shares of common stock (adjusted for the stock dividend). The options were
issued at January 1, 2013 and are exercisable one year from the date of
grant. The exercise price was $25. The market price of the common stock
averaged $30 for the year.
Also outstanding were $600 million face amount of 10% convertible bonds
issued in 2008 and convertible into 24 million common shares (adjusted for
the stock dividend).
Required: Compute basic and diluted EPS for the year ended December 31, 2013.
Page 14 of 38
Solution
($ in millions, except per share amount)
Solution:
net preferred
income dividends
$465 $15 $450
=
= $1.87
200(1.10)+ 24 (10/12)(1.10) 6 (2/12) 241
shares new retired
at Jan. 1 shares shares
____stock dividend___
adjustment
Diluted EPS
net preferred after-tax
income dividends Interest savings
$465 $15 + $60 - 40% ($60) $486
=
= $1.82
200(1.10)+ 24 (10/12)(1.10) 6 (2/12)+ (12 10*) + 24 267
shares new retired exercise conversion
at Jan. 1 shares shares of options of bonds
____stock dividend___
adjustment
*Shares Reacquired for Basic EPS
12 million shares
x $25 (exercise price)
$300 million
$30 (average market price)
10 million shares reacquired
Cash flow statement Math
Illustration 1 The comparative Balance statements of Juarez Company are presented

below:
Juarez Company
Comparative Balance Sheet
December 31
Particulars 2011 2010
Assets:
Cash $1,91,000 $1,59,000
Page 15 of 38
Accounts Receivable (Net) 12,000 15,000
Merchandise Inventories 1,70,000 1,60,000
Prepaid expenses 6,000 8,000
Land 1,40,000 80,000
Equipment 1,60,000
Accumulated Depreciation -Equipment (16,000)
Total Assets $6,63,000 4,22,000
Liabilities & Stockholders Equity:
Accounts Payable 52,000 60,000
Income tax payable 12,000 --------
Accrued expenses Payable 15,000 20,000
Bonds Payable 1,30,000 ----------
Common share 3,60,000 3,00,000
Retained Earnings 94,000 42,000
Total Liabilities & stockholders Equity $6,63,000 $4,22,000
Juarez Company
Income Statements
For the year ended December 31, 2011
Particulars Amount Amount
Net Sales revenue $9,75,000

Less: Cost of goods sold 6,60,000
Less: Operating expenses (excluding depreciation)
1,76,000
Depreciation Expenses 18,000
Loss on sale of equipment 1,000
8,55,000
Income before Income tax 1,20,000
Less: Income Tax Expenses 36,000
Net Income 84,000
Additional information:
a. In 2011, the company declared & paid a $32,000 cash dividend.
b. Bonds were issued at the face value for $1, 30,000 in cash.
c. Equipment with a cost of $1, 80,000 was purchased for cash.
Page 16 of 38
d. Equipment costing of $20,000 was sold for $17,000 cash when the book value of the
equipment was $18,000.
e. Common stock of $60,000 was issued to acquire land.
Required: Prepare a statement of Cash Flow for 2011, under the direct method.
Solution:
Juarez Company
Statement of Cash Flow Under direct Method
Cash flows from operating activities Amount Amount
Cash receipts from customers= Revenues-Decrease in accounts $9,78,000
receivable =($9,75,000+3,000)
Cash payments:
To suppliers: (COGS+ increase in inventories+ decrease in accounts
6,78,000
payable)
= (6,60,000+10,000+8,000)
From operating expenses: Operating expenses decrease in prepaid
1,79,000
expenses
+ decrease in accrued accounts payable (1,76,000--2,000+5,000)
For Income taxes: Income tax expenses- increase in income tax 24,000 8,81,000
payable=
(36,000-12,000)
Net Cash provided by operating activities 97,000
Cash flows from Investing activities:
Sale of Equipment 17,000
Purchase of Equipment (1,80,000)
Net Cash provided by Investing activities (1,63,000)
Cash flows from Financing activities:
Issue of bonds payable 1,30,000
Payments to cash dividends (32,000)
Net Cash provided by financing activities 98,000
Net increase in Cash 32,000
Cash at the beginning of the period 1,59,000
Cash at the end of the period $1,91,000
Non Cash investing & Financing activities:
Conversion of common stock to purchase land $60,000
Illustration 2
The income statement for the year ended December 31, 2011 for John Kolinsky
Manufacturing Company contained the following condensed information.
John Kolinsky Manufacturing Company

Income Statements
For the year ended December 31
Page 17 of 38
Revenue $65,83,000
Less: Operating expenses (excluding depreciation) 49,20,000
Depreciation expenses 8,80,000 58,00,000
Income before Income tax 7,83,000
Less: Income Tax Expenses 3,53,000
Net Income 4,30,000
Included in operating expenses is a $24,000 loss resulting from the sale of machinery for $2,
70,000 cash. Machinery was purchased at a cost of $7, 50,000.The following balances are
reported on John Kolinsky Manufacturing company comparative balance sheets at December
31
Comparative Balance Sheets (partial)
Particulars 2011 2004
Cash 6,72,000 $1,30,000
Accounts receivable 7,75,000 6,10,000
Inventories 8,34,000 8,67,000
Accounts Payable 5,21,000 5,01,000
An income tax expense of $3, 53,000 represents the amount paid in 2011. Cash dividend of
$2, 00,000 were declared & paid in 2011
Required: Prepare a statement of Cash Flow for 2011, under the indirect method.
Solution:
a. John Kolinsky Manufacturing company
Statement of Cash Flow Under Indirect Method
Cash flows from operating activities
Net income $4,30,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation Expenses $8,80,000
Page 18 of 38
Loss on sale of equipment 24,000
Increase in accounts receivable (1,65,000)
Decrease in inventories 33,000
Increase in Accounts Payable 20,000
7,92,000
Net Cash provided by operating activities 12,22,000
Sale of Machinery 2,70,000
Purchase of Machinery (7,50,000)
Payments of dividends (2,00,000)
Net increase in Cash 5,42,000

Cash flows from operating activities
Cash receipts from customers= Revenues- $64,18,000
increase in accounts receivable =($65,38,000-
1,65,000)
Cash payments:
From operating expenses: (49,20,000-24,000-
48,43,000
33,000-20,000)
For Income taxes 3,53,000 51,96,000
Sale of Machinery 2,70,000
Purchase of Machinery (7,50,000)
Payments of dividends (2,00,000)
Net increase in Cash 5,42,000
Illustration 3
You are the chief accountant of Electro Products, Incorporation. You assistant has prepared
an income statement for the current year and has developed the following additional
information by analyzing changes in the companys balance sheet accounts.
Electro Products, Incorporation

Income Statements
Page 19 of 38
Revenues:
Net sales $95,00,000
Interest income 3,20,000
Gain on sale of marketable securities 70,000
Total revenues and gains 98,90,000
Less: Costs and expenses
Cost of goods sold 48,60,000
Operating expenses (including depreciation of 37,40,000
$7,00,000)
Interest expenses 2,70,000
Income Tax Expenses 3,00,000
Loss on sale of plant assets 90,000
Total costs, expenses and losses 92,60,000
Net Income $6,30,000
Changes in the companys balance sheet accounts over the year are summarized as follows:
1. Accounts receivable decreased by $85,000.
2. Accrued interest receivable increased by $15,000.
3. Inventory decreased by $2, 80,000 and Accounts payable to suppliers of merchandise
decreased by $2, 40,000.
4. Short-term prepayments of operating decreased by $18,000 and accrued liabilities for
operating expenses increased by $35,000.
5. The liabilities for accrued interest payable decreased by $16,000 during the year.
6. The liabilities for accrued income tax payable increased by $25,000 during the year.
7. The following schedule summarizes the total debit and credit entries during the year
in other balance sheet accounts:
Particulars Debit ($) Credit ($)
Marketable securities 1,20,000 2,10,000
Notes receivable (cash loan made to others)

2,50,000 1,90,000
Plant assets (see paragraph 8) 38,00,000 3,60,000
Page 20 of 38
Notes Payable (short term borrowing) 6,20,000 7,40,000
Bonds payable 11,00,000
Capital stock 50,000
Additional paid in capital (from issuance of 8,40,000

stock)
Retained earnings (see paragraph 9) 3,20,000 6,30,000
8. The $3, 60,000 in credit entries to the plant asset accounts is net of any debits to
accumulated depreciation when plant assets were retired. Thus the $3, 60,000 in
credit entries represents the book value of all plant assets sold or retired during the
year.
9. The $3, 20,000 debits to retained earnings represents dividends declared and paid
during the year. The $6, 30,000 credit entry represents the net income for the year.
10.All investing and financing activities were cash transactions.
11.Cash and cash equivalents amounted to $4, 48,000 at the beginning of the year and
to $3, 30,000 at the year end.
Required: You are required to prepare a statement of Cash Flows for the current year
under the direct method. Show separately your computations of the following amounts:
(a) Cash received from customers (b) Interest received Cash paid to suppliers and
employers (d) Interest paid (e) Income taxes paid (f) Proceeds from sale of marketable
securities (g) Proceeds from sale of plant assets (h) Proceeds from issuing capital stock.
Solution:
Supporting computations:
(a)Cash received from customers:
Net sales $95,00,000

Add: Decrease in accounts receivable 85,000
Cash received from customers $95,85,000
(b)Cash received from interest received:
Interest income $3,20,000
Less: Increase in accrued interest receivable
15,000
Cash received from interest received 3,05,0000
(c) Cash paid to suppliers and employees:
Cash paid for purchases of merchandise:
Cost of goods sold $48,60,000
Less: Decrease in inventory 2,80,000
Net purchase $45,80,000
Add: Decrease in accounts payable to suppliers 2,40,000
Cash paid for purchases of merchandise $48,20,000
Page 21 of 38
Cash paid for operating expenses:
Operating expenses (including depreciation of $7,00,000) $37,40,000
Less: Depreciation ( a noncash expenses)--------------------7,00,000
Add: Decreases in prepayments-----------------------------------18,000
Add: Increase in accrued liabilities for operating expenses---
35,000
7,53,000
Cash paid for operating expenses: 29,87,000
Cash paid to suppliers and employees $78,07,000
=[48,20,000+29,87,000]
(d)Cash paid to Interest paid:
Interest expenses $2,70,000
Add: Decrease in accrued interest payable 16,000
Cash paid to Interest paid 2,86,000
(e)Cash paid to Income taxes:
Income tax expenses $3,00,000
Less: Increase accrued income tax payable 25,000
Cash paid to Income tax expenses 2,75,000
(f) Proceeds from sale of marketable securities:
Cost of marketable securities sold (Credit entries to the $2,10,000
marketable
securities account)
Add: Gain reported on sales of marketable securities 70,000
Proceeds from sale of marketable securities $280,000
(g)Proceeds from sale of plant assets:
Book value of all plant assets sold or retired (paragraph-8) $3,60,000
Less: Loss reported on sales of plant assets 90,000
Proceeds from sale of plant assets $2,70,000
(h) Proceeds from issuing capital stock.
Amounts credited to the capital stock account $50,000
Add: Amounts credited to Additional paid in capital (from 8,40,000
issuance of stock)
Proceeds from issuing capital stock. $8,90,000
Electro Products, Incorporation
Cash flows from operating activities: Amount Amount
Cash receipts from customers (a) $95,85,000
Cash received from interest received (b) 3,05,000
Cash provided by operating activities 98,90,000
Cash payments:
Cash paid to suppliers and employees (78,07,000)
Cash paid to Interest paid (d) (2,86,000)
Cash paid to Income taxes (e) (2,75,000)
Cash disbursements for operating (83,68,000)
activities
Page 22 of 38
Purchase of marketable securities (1,20,000)
Proceeds from sale of marketable securities (f) 2,80,000
Loan made to borrowers (2,50,000)
Collections on loans 1,90,000
Cash paid to acquire the plant assets (38,00,000)
Proceeds from sale of plant assets (g) 2,70,000
Proceeds from short term borrowing $7,40,000
Payments to settle the short-term debts (6,20,000)
Proceeds from issuing bonds payable 11,00,000
Proceeds from issuing capital stock 8,90,000
Dividend paid (3,20,000)
Net Cash provided by financing activities 17,90,000
Net increase (decrease) in Cash (1,18,000)
Cash and cash equivalents , Jan. 1 4,48,000
Cash and cash equivalents , Dec. 31 $3,30,000
Consolidated Financial Statements

1. The following summarized Financial Position of Holding Company and Subsidiary
Company as on 31st December 2008 are given below:
Account Titles H. Ltd. S. Ltd.
Assets:
Land 1,00,000 40,000
Building 1,00,000 50,000
Merchandise inventory 90,000 30,000
Accounts Receivable 40,000 30,000
Cash and cash equivalents 1,20,000 25,000
Investment: 8,000 shares in S Ltd 1,25,000 -----------
Total Assets 5,75,000 1,75,000
Liabilities and Shareholder Equity:
5,000 equity shares of Tk.100 each 5,00,000
10,000 equity shares of Tk.10 each ---- 1,00,000
Profit and Loss 55,000 40,000
Accounts payable 20,000 35,000
Total liabilities and Shareholder Equity 5,75,000 1,75,000
H. Ltd has acquired shares in S ltd on 01.01.2008 when the S Ltd had Tk.25, 000 in
profit and loss account. No dividend has been declared by S ltd in 2008.
Required: Prepare a Consolidated Balance Sheet as at 31 st December 2008
2. The following summarized Financial Position of Holding Company and Subsidiary
Company as on 31st December 2008 are given below:
Assets:
Goodwill 40,000 30,000
Non-current assets 3,60,000 2,20,000
Page 23 of 38
Merchandise inventory 1,00,000 90,000
Cash and cash equivalents 60,000 25,000
Investment: 16,000 shares in S Ltd at cost 2,40,000 -----------
Total Assets 8,20,000 4,40,000
Shares capital (Share of Tk.100 each) 5,00,000 2,00,000
General reserve as on 01.01.2008 1,00,00 60,000
Notes payable 40,000
Profit and Loss 1,40,000 90,000
The profit and loss account of S ltd showed a credit balance of Tk.50, 000 on 1 st
January 2008. A dividend of 15% was paid in October, 2008 for the year 2007. This
dividend was credited by H Ltd to its profit and loss account. H. Ltd has acquired the
shares on 1st July 2008. The notes payable of S Ltd were all issued in favor of H ltd
which the company got discounted, included in the accounts payable of S ltd is
Tk.24,000 for goods supplied by H. Ltd. Also in the merchandising inventory of S
Ltd. are goods to the value of Tk.8, 000 which were supplied by H ltd at a profit of
33.33% on cost.
Step-1
Calculation of Degree of Control:
H Ltd. 1,600/2,000 =80%
S ltd=400/2,000 =20%
Step-2
Calculation of actual profit during the year:
Ending balance of profit 90,000
Less: Opening balance of profit 50,000
Less: Dividend paid 30,000
------------------- 20,000
Actual profit during the year 70,000
==============
Pre-acquisition profit 70,000*1/2 =35,000
Post-acquisition profit 70,000*1/2 =35,000
Step-3
Calculation of capital profit
General reserve at the beginning of the year 60,000
Profit and loss after paying dividend 20,000
Pre-acquisition profit 35,000
Total capital profit 1,15,000
H Ltd. 1,15,000* 80%=92,000
S ltd=1,15,000*20% =23,000
Step: 4
Calculation of revenue profit
3. Draft consolidated Balance sheet as at 31st December 2008 from the following
information.
Page 24 of 38
Assets:
Non-current assets 9,000 5,200
Merchandise inventory 3,100 7,200
Bank account 1,100 1,400
Investment: 600 shares in S Ltd at cost 9,700 -----------
Total Assets 27,800 17,600
Shares capital (Share of Tk.10 each) 20,000 10,000
Profit and loss on 31- 12-2007 (Profit)
6,500
Loss during 2008 4,000
2,500
------------------ 5,500
S Ltd profit on 31.12.2007
3,500
Profit for 2008
2,000
-----------------
Total liabilities and Shareholder Equity 27,800 17,600
At the balance sheet date S ltd owes H ltd. Tk.600. During the year H ltd. sold goods
which had cost Tk.300 to S ltd. for Tk.500. Three-fourths of these goods had been
sold by S Ltd by that time.
The following summarized Financial Position of PQR Company and STU Company as
on 31st December 2008 are given below:
Account Titles PQR STU Company
Company
Assets:
Goodwill $80,000 $60,000
Plant and Machinery 3,60,000 2,20,000
Land and Building 40,0000 1,00,000
Equipment 3,20,000 1,20,000
Merchandise inventory 1,50,000 1,00,000
Accounts Receivable 30,000 1,00,000
Trade receivable 10,000 50,000
Investment: 1600 shares in STU 4,80,000 -----------
company at cost
Total Assets 16,40,000 8,80,000
Shares capital (Share of $100 each) 10,00,000 4,00,000
General reserve as on 01.01.2008 2,00,000 1,20,000
Page 25 of 38
Notes payable 40,000 40,000
Bonds payable 20,000 40,000
Accounts payable 1,00,000 1,00,000
Retained earnings 2,80,000 1,80,000
(i) The retained earnings statement account of STU Company showed a credit
balance of $1, 00,000 1st January 2008.
(ii) A dividend of 10%was paid in October, 2008 for the year 2007.
(iii) This dividend was credited by to its retained earnings statement account.
(iv) PQR Company has acquired the shares on 1 st July 2008.
(v) The notes payable of STU company were all issued in favor of PQR
company which the company got discounted, included in the accounts
payable of STU company is $60,000 for goods supplied by PQR company.
(vi) Also in the merchandising inventory of STU Company are goods to the
value of Tk.25, 000 which were supplied by PQR Company at a profit of
25% on cost.
The following summarized Financial Position of PQR Company and STU Company as
on 31st December 2008 are given below:
Account Titles PQR STU
Company Company
Assets:
Goodwill $80,000 $60,000
Plant and Machinery 3,60,000 2,20,000
Land and Building 40,000 1,00,000
Equipment 3,20,000 1,20,000
Merchandise inventory 1,50,000 1,00,000
Accounts Receivable 30,000 1,00,000
Trade receivable 10,000 50,000
Investment: 1600 shares in STU 4,80,000 -----------
company at cost
Total Assets 16,40,000 8,80,000
Shares capital (Share of $200 each) 10,00,000 4,00,000
General reserve as on 01.01.2008 2,00,000 1,20,000
Notes payable 40,000 40,000
Bonds payable 20,000 40,000
Income tax payable 30,000 20,000
Interest payable 20,000 20,000
Retained earnings 2,80,000 1,80,000
(i) The retained earnings statement account of STU Company showed a credit
balance of $1, 00,000 1st January 2008.
(ii) A dividend of 10%was paid in October, 2008 for the year 2007.
Page 26 of 38
(iii) This dividend was credited by PQR Company to its retained earnings statement
account.
(iv) PQR Company has acquired the shares on 1 st July 2008.
(v) The notes payable of STU company were all issued in favor of PQR company
which the company got discounted, included in the accounts payable of STU
company is $60,000 for goods supplied by PQR company.
(vi) Also in the merchandising inventory of STU Company are goods to the value of
Tk.25, 000 which were supplied by PQR Company at a profit of 20% on cost.
Question#1
From the following balance of Uttara Bank Limited as on 31 st December, 2008
Particulars Amount(Tk.)
Authorized capital:10,00,000 ordinary shares of Tk.10 1,00,00,000
each
Issued capital:5,50,000 ordinary shares of Tk.10 each 55,00,000
fully called-SOCE
Calls in arrears= SOCE- 5,00,000
Current, Savings and Deposits accounts=Current 1,54,00,000
liabilities
Investment at cost=Assets 76,50,000
Interest accrued on investment=Assets 50,000
Profit & loss account (Cr.)-SOCE 50,000
Office furniture & fittings=assets 1,00,000
Interest & Commission=Operating income 6,30,000
Discount & exchange= Operating income 1,15,000
Reserve fund=Shareholder equity 12,50,000
Overdraft & cash credit=Assets 90,00,000
Miscellaneous receipt= Operating income 500
Rent and taxes=Operating expenses 30,000
Traveling expenses= Operating expenses 6,000
Profit on sale of investments=Operating income 8,000
Share transfer fee=Operating income 1,000
Auditor fees & law charges =Operating expenses 5,000
Loans & advances=Assets 4,00,000
Bills discounted & purchased=Assets 7,00,000
Interest on deposit=Interest and Commission-2,60,000 2,60,000
Salaries & allowances= Operating expenses 2,15,000
Advertising= Operating expenses 3,000
Investment reserve fund=Shareholders equity 50,000
Cash in hand=Assets 15,00,000
Books, forms & stamps in hand=Other assets 50,000
Postage, Telegram & telephone= Operating expenses 10,000
Insurance= Operating expenses 2,000
General expenses= Operating expenses 6,000
Depreciation on Office furniture & fittings= Operating 2,500
expenses
Cash with other banks=Assets 25,00,000
Page 27 of 38
Printing & stationery= Operating expenses 15,000
Acceptances for customers=Assets+ liabilities 3,50,000
Bills for collection=Assets+ liabilities 1,20,000
Adjustments:
(a) The market price of investment is tk.76, 15,000.
(b) Rebate on un-expired bills amounted Tk.6, 000.
(c) Provision for doubtful debts should be made to the extent of Tk.5, 000.
(d) Provide Tk.75,000 for taxation
(e) Contingent liabilities amounted to Tk.20, 000.
Required:
(a)Prepare a Profit & Loss account for the year ended 31st December
2008
(b)Prepare a Balance Sheet as on 31st December 2008
Solution
Uttara Bank Limited
Statement of Financial Performance (After adoption of IAS-30)
Particulars Amount Amount(Tk.)
Operating Income:
Interest & Commission 6,30,000
Less: Interest on deposits 2,60,000
Net interest income 3,70,000
Discount & Exchange 1,15,000 15,000
Less: Rebate on bills discounted 6,000
1,09,000
Profit on sale of investment 8,000
Miscellaneous receipts 500
Share transfer fees 1,000
Total operating income 4,85,500
Less: Operating expenses:
Salary & allowances 2,15,000
Advertising expenses 3,000
Rent & taxes 30,000
Traveling expenses 6,000
Postage, Telegram & Telephone 10,000
General expenses 6,000
Printing & Stationery 15,000
Auditors fees & law charges 5,000
Depreciation on Furniture & fittings 2,500
Total Operating expenses 2,92,500
Profit before provision against classified
assets
Less: Provision for doubtful debts 5,000
Provision for contingency 20,000
Total Provision s 25,000
Total profit before tax 1,71,000
Less: Provision for taxation 75,000
Net profit after tax 96,000
Less: Appropriations
Page 28 of 38
Statutory reserve (20% of profit) 19,200
Retained profit for the year 76,800
Add: last year profit 50,000
Profit surplus at December 31, 2005 1,26,800
Uttara Bank Limited
Statement of Financial Position (After adoption of IAS-30)
As on December 31, 2008
Particulars Amount Amount (Tk.)
Assets:
Cash in hand 15,00,000
Cash with other Banks 25,00,000
40,00,000
Money at Call & Short notice Nill
Investment:
Investment (at cost) 76,50,000
Less: Reduction 35,000
76,15,000
Loans & Advances:
Loans & Advances 4,00,000
Overdraft & Cash Credits 90,00,000
Bills discounted & purchased 7,00,000
1,01,00,000
Premises& Fixed Assets 1,00,000
Other Assets:
Books, forms & stamps in hand 50,000
Prepaid insurance 2,000
Interest on investment due 50,000
1,02,000
Non banking assets acquired in Nill
satisfaction of claims
Total Assets 2,19,17,000
Liabilities & shareholder Equity:
Liabilities:
Borrowings, Loans from other banks, Nill
financial institutions and agents:
Deposit and other accounts:
Current, Savings and Deposits 1,54,00,000
accounts
Other Liabilities:
Rebate on bills amounted 6,000
Provision for doubtful debts 5,000
Provision for taxation 75,000
Provision for contingency 20,000
1,06,000
Total Liabilities 1,55,06,000
Shareholders Equity:
Paid up capital 55,00,000
Less: Calls in arrears 5,00,000
Page 29 of 38
50,00,000
Reserve fund 12,50,000
Statutory reserve 19,200
Investment reserve fund 50,000
Less: Fall on Investment 35,000
15,000
Profit & Loss account surplus (as per 1,26,800
statement)
Total Shareholders Equity 64,11,000
Liabilities & shareholder Equity 2,19,17,000
Question#2
Following is the trial balance of Habib Bank Limited as on 31 st December, 2005
Particulars Amount(Tk.) Amount(Tk.
)
Share Capital (authorized & paid up):10,000 5,00,000
shares of Tk.100 each and Tk.50 paid up
Reserve fund 8,00,000
Fixed deposit account 30,00,000
Savings bank deposits 20,00,000
Current accounts and unadjusted 1,10,00,00
contingencies 0
Money at call and Short notice in Bangladesh 1,00,000
Money at call and Short notice outside 50,000
Bangladesh
Bills discounted & purchased- in Bangladesh 4,50,000
Bills discounted & purchased- outside 1,00,000
Bangladesh
Investment at cost:
Government securities 50,00,000
Shares: Ordinary fully paid 5,00,000
Preference fully paid 1,00,000
Preference partly paid (calls to be 50,000
made20,000)
Debentures 2,00,000
Gold 12,00,000
Pakistan Government securities 5,00,000
Reserve for building 5,00,000
Interest and discount received 6,50,000
Commission, Exchange & brokerage etc 60,000
Rent 20,000
Interest on deposits, current account etc 2,00,000
Salaries (Tk.30,000 to general manager) 2,15,000
Postage & Telegrams 5,000
Rent, Rates, Insurance etc 11,000
Legal charges 500
Page 30 of 38
Directors fees 2,500
Auditors fees 1,500
Miscellaneous receipts 61,000
Premises at cost 50,00,000
Addition to premises 10,00,000
Depreciation fund on premises 40,00,000
Repair to premises 60,000
Stationery, printing & advertisement 72,000
Stamps on hand 3,000
Other expenses of the business 15,000
Cash in hand 62,000
Cash with Bangladesh Bank 12,00,000
Cash with Pakistan State Bank 5,00,000
Cash with other Banks in Bangladesh 6,00,000
Unclaimed dividends 12,000
Un-expired discounts 25,000
Loans, Cash Credit and Overdraft:
In Bangladesh 50,00,000
In Pakistan 8,00,000
Branch adjustments (Dr.) 9,00,000
Silver 1,00,000
Advance payment of tax 60,500
Interest accrued on investments 1,25,000
Interim dividend on share capital 25,000
Non-banking assets acquired in satisfaction of 10,000
claims
Borrowed from banks in Bangladesh 1,25,000
Borrowed from banks in Pakistan 15,000
Bills Payable 10,00,000
Profit & loss Account (1,01,2005) (Cr) 1,50,000
Dividend equalization fund 3,00,000
Total 2,42,18,000 2,42,18,00
0
The Bank had bills for collection Tk.1,50,000 including Tk.10,000 in Pakistan and
Acceptance & endorsements Tk.2,00,000 on December 31, 2005 for its constituents.
The directors decided to reserve Tk.1,000 reserve more of unexplored discounts. Bonus
to staff to be provided Tk.42,000 including Tk.5,000 to general manager. The directors
decided to transfer reserve for building to depreciation fund account as new premises
have been completed. Out of loans to clients in Pakistan, a loan to the extent of
Tk.5000 is considered bad and the directors have passed a resolution to write off. All
other loans and debts are considered good.
Required:
(c) Prepare a Profit & Loss account for the year ended 31st December 2005
(d)Prepare a Balance Sheet as on 31st December 2005
Page 31 of 38
Q.No.3.
From the following balances of American Life Insurance Corporation has presented Trial
Balance as at December 31, 2008.
Particulars Dr. Amount (Tk.) Cr. Amount
(Tk.)
Claims paid and outstanding less 39,51,000
reinsurance claims
Life insurance fund at the beginning of 3,04,0 0,000
the year
Single premium 2,500
Renewal premium 2,00,000
Annuities paid 20,000
Auditors fees 350
Surrenders less reinsurance 2,00,000
Accounting fees 8,570
Re-insurance premium 25,630
Dividends for 2007 32,250
Bonus in cash 8,560
Bonus in reduction of premiums 1,800
Gratuities and special allowance to ex- 22,240
employers
Income tax and super tax 2,10,000
Commission 3,13,180
Agents and canvassers allowances 71,560
Salaries 4,22,320
Company contribution to staff pension 18,090
fund
General charges 23,440
Auditors fees 10,000
Commission to issuance agents 3,500
Medical fees 80,000
Rent of corporation office 35,300
Legal expenses 1,780
Printing and stationery 35,200
Postage and telegrams 22,340
Receipt stamps 6,440
Policy stamps 5,780
Bank charges 15000
Depreciation expenses-furniture 10,000
Amount written off upon revaluation of 340
securities
Doubtful debts 2,310
Outstanding premiums 3,21,190
Outstanding interest 4,00,200
Page 32 of 38
Accounts receivable (including doubtful 14,800
Tk.2310)
Interest accrued but not received 2,15,480
Cash in hand 7,250
Securities deposits in bank 20,870
Cash at bank on current account 97,770
Contingency reserve fund 1,80,000
Investment reserve fund 20,00,000
Building fund 65,500
Premiums 63,03,000
Considerations for annuities granted 2,530
Interest and rent less tax thereon 18,00,000
Profit on revaluation of investment 1,00,000
Appreciation of investment 2,00,000
Dividend received less tax thereon 39,400
Fines for revival policy 80,000
Transfer from appropriation account 20,000
Profit on sale debentures 7,000
Registrations fees 2,600
Conversion fees 1,300
Transfer and other fees 2,000
Premiums and deposits 98,700
Outstanding claims 17,45,900
Unclaimed surrender values 39,100
Unpaid dividend 4,670
Accounts payable 47,330
Security deposits 20,870
Agent balances 37,300
Loan on company policies 39,00,000
Reversion and life interest 17,200
Furniture & Equipment 60,000
Deposit with the controller of currency 1,40,000
(3.50% Govt paper of Tk.2,00,000)
Other investment 3,11,05,000
Freehold house property:
Out of Bangladesh 75,000
Leasehold house property in Bangladesh 3,10,000
Total 4,35,47,400 4,35,47,400
Adjustments:
(a) The amount of shareholders capital and the credit balance of contingency
reserve fund remain unchanged at the end of the year.
(b) The investment reserve fund is to be reduced to Tk.16,80,000
(c) Building fund increased to Tk.73,300
Required:
(a) Prepare a Revenue Statement in a prescribed form for the year ended 31 st
December, 2008.
Page 33 of 38
(b) Prepare a Balance Sheet Statement in a prescribed form as on 31 st December,
2008.
Jibon Bima Corporation
A Revenue Statement
December 31, 2008
Incomes:
Life insurance fund at the beginning of 3,06,0 2,500
the year
Premiums less reinsurance 63,03,000- 62,77,370
25,630
Considerations for annuities granted 2,530
Transfer and other fees 3,300
Amount transferred from investment (20,00,000- 3,20,000
reserve fund 16,80,000)
Profit on sale debentures 9,600
Total incomes 3,94,54,700
Expenditures:
Claims paid and outstanding less
reinsurance claims:
By death 20,55,800
By maturity 18,95,200
39,51,000
Annuities paid 20,350
Surrenders 2,08,570
Re-insurance premium 25,630
Dividends for 2004 32,250
Bonus in cash 8,560
Bonus in reduction of premiums 1,800
Gratuities and special allowance to ex- 22,240
employers
Income tax and super tax 2,10,000
Commission 3,13,180
Agents and canvassers allowances 71,560
Salaries 4,22,320
Company contribution to staff pension 18,090
fund
General charges 23,440
Auditors fees 10,000
Medical fees 83,500
Rent of corporation office 35,300
Legal expenses 1,780
Printing and stationery 35,200
Postage and telegrams 22,340
Receipt stamps 6,440
Policy stamps 5,780
Page 34 of 38
Bank charges 15,220
Depreciation expenses-furniture 10,120
Bad debts 2,310
Transfer to building fund 73,300- 7,800
65,500
Total expenses
Balance of fund at the end of the year 3,38,71,690
Jibon Bima Corporation
A Balance sheet Statement
December 31, 2008
Assets:
Loan on company policies within their 3917,200
surrender values
Investment: Deposit with the controller of 1,40,000
currency (3.50% Govt paper of Tk.2,00,000)
Securities deposits in bank and in 20,870
government paper
Other investment (to be specified) 3,11,05,000
Freehold house property:
12,99,500
Leasehold house property in Bangladesh 3,10,000
Outstanding premiums 3,21,190
Outstanding interest 4,00,200
Interest accrued but not received 2,15,480
Cash in hand 7,250
Furniture & Equipment 60,000
Accounts receivable (including doubtful 14,800
Tk.840)
Cash at bank on current account 97,770
Total Assets 3,79,46,560
Liabilities and shareholder Equity:
Balance of life fund at the end of the year 3,38,71,690
Contingency reserve fund 1,80,000
Investment reserve fund 16,80,000
Building fund 73,300
Unpaid dividend 4,670
Accounts payable 47,330
Outstanding claims 17,45,900
Unclaimed surrender values 39,100
Security deposits 20,870
Premiums and deposits 98,700
Total liabilities and shareholder Equity 3,79,46,560
Q.No.4.
Page 35 of 38
From the following balances of American Life Insurance Corporation has presented Trial
Balance as at December 31, 2008.
S.N Account Titles Dr. (Tk.) Cr. (Tk.)
o
1 Claims paid 39,00,000
2 Life insurance fund at the beginning of 3,04,00,000
the year
3 Single premium 2,500
4 Renewal premium 2,00,000
5 Annuities paid 71,000
6 Auditors fees 350
7 Surrenders less reinsurance 2,00,000
8 Accounting fees 8,570
9 Re-insurance premium 25,630
10 Dividends for 2007 32,250
11 Bonus in cash 8,560
12 Bonus in reduction of premiums 1,800
13 Gratuities and special allowance to ex- 22,240
employers
14 Income tax and super tax 2,10,000
15 Commission 3,13,180
16 Agents and canvassers allowances 71,560
17 Salaries 4,22,320
18 Company contribution to staff pension 18,090
fund
19 General charges 23,440
20 Traveling expenses 15,200
21 Directors fees 18,800
23 Auditors fees 10,000
24 Commission to issuance agents 3,500
25 Medical fees 80,000
26 Rent of corporation office 35,300
27 Legal expenses 1,780
28 Advertising expenses 9,860
29 Printing and stationery 35,200
30 Postage and telegrams 22,340
31 Receipt stamps 6,440
32 Policy stamps 5,780
33 Bank charges 15000
34 Depreciation expenses-furniture 10,000
35 Amount written off upon revaluation of 340
securities
36 Doubtful debts 2,310
37 Outstanding premiums 3,21,190
38 Outstanding interest 4,00,200
39 Accounts receivable (including doubtful 14,800
Tk.2310)
40 Interest accrued but not received 2,15,480
Page 36 of 38
41 Cash in hand 7,250
42 Securities deposits in bank 20,870
43 Cash at bank on current account 97,770
44 Contingency reserve fund 1,80,000
45 Investment reserve fund 20,00,000
46 Building fund 65,500
47 Paid up capital 1,85,000
48 Premiums 63,03,000
49 Considerations for annuities granted 2,530
50 Interest and rent less tax thereon 18,00,000
51 Profit on revaluation of investment 1,00,000
52 Appreciation of investment 2,00,000
53 Dividend received less tax thereon 39,400
54 Fines for revival policy 80,000
55 Transfer from appropriation account 20,000
56 Profit on sale debentures 7,000
57 Registrations fees 2,600
58 Conversion fees 1,300
59 Transfer and other fees 2,000
60 Premiums and deposits 98,700
61 Outstanding claims 17,45,900
62 Unclaimed surrender values 39,100
63 Unpaid dividend 4,670
64 Accounts payable 47,330
65 Security deposits 20,470
66 Agent balances 37,300
67 Loan on company policies 39,00,000
68 Reversion and life interest 17,200
69 Furniture & Equipment 60,000
70 Deposit with the controller of currency 1,40,000
(5.00% Govt paper of Tk.2,00,000)
71 Other investment 3,11,05,000
72 Freehold house property:
73 Leasehold house property in Bangladesh 3,10,000
Total 4,35,47,000 4,35,47,000
Adjustments:
(d) The society holds Tk.1, 20,000 government securities (which are not
included in the above balances) deposited by the chief security agent.
[ balance sheet Assets+20,000 and Liability-20,000]
(e) Interim bonus paid during the year Tk.10, 000.[ n/a]
(f) The director have dissolved that a claim of Tk. 2,000 included in the above
claims payable be written off as it is ten years old and not likely to arise.
[ claim-1000 and Balance sheet claim payable -1000]
(g) Bonus utilized in reduction of premium Tk.10, 000.[ Bonus+10,000,
Premium -10,000]
(h) The amount of shareholders capital and the credit balance of contingency
reserve fund remain unchanged at the end of the year.
Page 37 of 38
(i) Claims admitted but not paid Tk.1, 000.
(j) Interest earned but not received Tk.2, 000.
(k) Claims covered by re-insurance Tk.7, 000.[ Claims paid-reinsurance covers
7000 and balance sheet assets +10,000 claims recoverable under
reinsurance]
(l) The investment reserve fund is to be reduced to Tk.16,70,000
(m) Building fund increased to Tk.80,000
(n) Expenses to management prepaid Tk.7, 000.
(o) Provide Tk.22,000 for depreciation on building and Tk.7,000 for Furniture &
Office equipments
(p) Provide Tk.75, 000 for taxation.
(q) Premium outstanding Tk.10, 00,000; commission thereon Tk.32, 000.
(r) Dividend & rent outstanding Tk.1, 90,000.
(s) Interest accrued on investment Tk.5, 700.
(t) The managing directors will be paid 5% commission on the net increase of
life assurance fund during the year.[Commission to managing directors,
Commission payable to MD]
Required:
(c) Prepare a Revenue Statement in a prescribed form for the year ended 31 st
December, 2008.
(d) Prepare a Balance Sheet Statement in a prescribed form as on 31 st December,
2008.
Page 38 of 38

Advanced Financial Accounting Spring 2016 JNU

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Advanced Financial Accounting Spring 2016 JNU

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Accounting for Lease

1. Determine the price of the bonds at January 1, 2013.

Interest $5,500,000 x 11.46992 (from Table 2) =$63,084,560

2. Prepare the journal entry to record their issuance by Kelly

Cash (price determined above) 94,264,560

Interest expense (6% x $94,264,560) 5,655,874

Interest expense (6% x [$94,264,560+155,874)5,665,226

Unrealized holding loss 414,340

Present value of quarterly rental payments ($800 x 7.23028) $5,784

Selling price $5,784

Lease receivable (calculated above)......... 5,784

Cash (lease payment)............................... 800

Cash (lease payment) 800

Cash flow statement Math

Illustration 1 The comparative Balance statements of Juarez Company are presented

Particulars Amount Amount

Net Sales revenue $9,75,000

Income before Income tax 1,20,000

Less: Income Tax Expenses 36,000

Net Income 84,000

a. In 2011, the company declared & paid a $32,000 cash dividend.

c. Equipment with a cost of $1, 80,000 was purchased for cash.

e. Common stock of $60,000 was issued to acquire land.

John Kolinsky Manufacturing Company

Depreciation expenses 8,80,000 58,00,000

Income before Income tax 7,83,000

Less: Income Tax Expenses 3,53,000

Net Income 4,30,000

Inventories 8,34,000 8,67,000

Accounts Payable 5,21,000 5,01,000

John Kolinsky Manufacturing Company

Electro Products, Incorporation

Particulars Amount Amount

Interest expenses 2,70,000

Income Tax Expenses 3,00,000

Loss on sale of plant assets 90,000

Total costs, expenses and losses 92,60,000

Net Income $6,30,000

Particulars Debit ($) Credit ($)

Marketable securities 1,20,000 2,10,000

Notes receivable (cash loan made to others)

Plant assets (see paragraph 8) 38,00,000 3,60,000

Bonds payable 11,00,000

Capital stock 50,000

Additional paid in capital (from issuance of 8,40,000

Retained earnings (see paragraph 9) 3,20,000 6,30,000

Net sales $95,00,000

Consolidated Financial Statements

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