Accounting Question

College of Administrative and Financial SciencesAssignment 2
Deadline: 04/05/ 2024 @ 23:59
Student’s Name:
Student’s ID Number:
CRN: 23339
Course Name: Financial Accounting
Course Code: ACCT 201
Semester: 2
Academic Year: 2023- 24
For Instructor’s Use only
Instructor’s Name: Dr. Youssef RIAHI
Students’ Grade: …… /15
Level of Marks: High/Middle/Low
nstructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
•
Submissions without this cover page will NOT be accepted.
College of Administrative and Financial Sciences
Assignment Question(s): Total Marks 15
Q1. M Corp. makes a loan to N Co. and receives in exchange a three-year, SR 15,000 note
bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is
12 percent.
Required: (4 Marks)
a. How does M Corp record the receipt of the note using present value?
b. Imagine the same note at zero bearing and pass journal entries using present value.
(Note: PV of Interest at 12% is 2.40183
and PV of Principal at 12% is
.71178)
Answer:
Q2. XYZ Company’s record of transactions for the month of September was as follows.
Date
Sep 1
Sep 4
Sep 11
Sep 18
Sep 26
Sep 30
Total
Purchase
Quantity
Unit Price
Date
(Balance on $4.00
Sep 5
hand) 100
300
4.50
Sep 12
200
5.00
Sep 27
200
5.25
Sep 28
500
5.50
200
5.75
1,500
Total units (ending inventory) 350
Sales
Units
200
150
600
200
1,150
Required: (4 Marks)
Compute the ending inventory and COGS at September 30 on each of the following on
periodic bases.
1. FIFO
2. WA
College of Administrative and Financial Sciences
Answer:
Q3 IFRS requires capitalizing actual interest (with modification) Consistent with historical
cost. Capitalization considers three items:
1. Qualifying assets.
2. Capitalization period.
3. Amount to capitalize.
Explain the above with numerical examples. (4 Marks)
Answer:
Q4 A long-lived tangible asset is impaired when a company is not able to recover the asset’s
carrying amount either through using it or by selling it. The management to identify whether
the asset has impairment or no impairment conducts an impairment test.
Explain how the impairment test conducted in both situations with numerical examples. (3
Mark)
Answer:
College of Administrative and Financial Sciences
Assignment 2
Deadline: 04/05/ 2024 @ 23:59
Student’s Name:
Student’s ID Number:
CRN:
Course Name: Financial Accounting
Course Code: ACCT 201
Semester: 2
Academic Year: 2023- 24
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: …… /15
Level of Marks: High/Middle/Low
nstructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
•
Submissions without this cover page will NOT be accepted.
College of Administrative and Financial Sciences
Assignment Question(s): Total Marks 15
Q1. M Corp. makes a loan to N Co. and receives in exchange a three-year, SR 15,000 note
bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is
12 percent.
Required: (4 Marks)
a. How does M Corp record the receipt of the note using present value?
b. Imagine the same note at zero bearing and pass journal entries using present value.
(Note: PV of Interest at 12% is 2.40183
and PV of Principal at 12% is
.71178)
Answer:
a. Face value of the note
15,000
P.V of the principle (15,000*.71178)
10,677
P.V of the interest (1,500 * 2.40183)
3,603
P.V of the note
14,280
Different (discount)
(720)
Date of issue
End of yr1
End of yr2
End of yr3
Residual of note discount amortization
Effective-interest method
10% note discount at 12%
Cash receivable
Interest revenue
Discount
amortization
1,500
1,714
214
1,500
1,740
239
1,500
1,768
268
Carrying amount
of the note
14,494
14,733
15,000
College of Administrative and Financial Sciences
Date
Beg, yr1
End.yr1
Accounting
Note receivable
Cash
DR
14,280
Cash
Note receivable
Interest revenue
(14,280*12%)
1,500
214
14,280
1,714
b. a. Face value of the note
P.V of the principle (15,000*.71178)
Date of issue
End of yr1
End of yr2
End of yr3
Date
Beg, yr1
CR
15,000
10,677
Residual of note discount amortization
Effective-interest method
0% note discount at 12%
Cash receivable
Interest revenue
Discount
amortization
0
1,281
1,281
0
1,453
1,453
0
1,607
1,607
Accounting
Note receivable
Cash
DR
10,677
Note receivable
Interest revenue
(10,677*12%)
1,281
Carrying amount
of the note
11,958
13,393
15,000
CR
10,677
End.yr1
1,281
College of Administrative and Financial Sciences
Q2. XYZ Company’s record of transactions for the month of September was as follows.
Date
Sep 1
Sep 4
Sep 11
Sep 18
Sep 26
Sep 30
Total
Purchase
Quantity
Unit Price
Date
(Balance on $4.00
Sep 5
hand) 100
300
4.50
Sep 12
200
5.00
Sep 27
200
5.25
Sep 28
500
5.50
200
5.75
1,500
Total units (ending inventory) 350
Sales
Units
200
150
600
200
1,150
Required: (4 Marks)
Compute the ending inventory and COGS at September 30 on each of the following on
periodic bases.
1. FIFO
2. WA
Answer:
Date
College of Administrative and Financial Sciences
Purchase
Sold
No. units * unit cost
No. units * unit cost
Sep1
Sep2
Sep5
100 *4
300*4.5
Sep11
Sep12
200*5
Sep18
Sep 26
Sep 27
200*5.25
500*5.5
Sep28
Sep30
total
(100*4) = 400
(100*4.5) =450
(150* 4.5) =675
(50*4.5) =225
(200*5) =1,000
(200*5.25) =1,050
(150*5.5) =825
(200*5.5) = 1,100
200*5.75
7,700
5,725
Total cost
400
1,350
(850)
1,000
(675)
1,050
2,750
(3,100)
(1,100)
1,150
1,975
a- FIFO
Ending inv= 150*5.5 + 200 *5.75 =1,975
COGS = 850 + 675 + 3,100 + 1,100 = 5,725
b- W.A: 7,700/ 1,500 = 5.13
ending inventory = 350 * 5.131,799
COGS = 1,150* 5.13 = 5,900
Q3 IFRS requires capitalizing actual interest (with modification) Consistent with historical
cost. Capitalization considers three items:
1. Qualifying assets.
2. Capitalization period.
3. Amount to capitalize.
Explain the above with numerical examples. (4 Marks)
College of Administrative and Financial Sciences
1. Qualifying assets:
Under IFRS, only certain types of assets qualify for the capitalization of actual interest. These assets are those
that require a substantial period of time to get them ready for their intended use or sale. Examples of qualifying
assets include buildings, machinery, and infrastructure projects.
Example:
Suppose a company is constructing a new building for its operations. The construction of the building qualifies
as a qualifying asset under IFRS.
2. Capitalization period:
The capitalization period is the period during which the company incurs borrowing costs that are eligible for
capitalization. It starts when the company incurs expenditure for the asset’s construction or production and ends
when the asset is substantially ready for its intended use or sale.
Example:
Let’s consider the construction of a building again. The company starts incurring borrowing costs when it begins
the construction process. The capitalization period for the borrowing costs associated with the building
construction would begin from the date when the construction activities commence and end when the building
is ready for use.
3. Amount to capitalize:
The amount to capitalize refers to the actual interest costs that are eligible for capitalization. Only borrowing
costs that are directly attributable to the acquisition, construction, or production of the qualifying asset should
be capitalized.
Example:
Suppose the company obtained a loan specifically to finance the construction of the building. The annual interest
expense on the loan is $10,000. The company determines that 80% of the loan is directly attributable to the
construction of the building. Therefore, the amount to be capitalized would be $10,000 multiplied by 80%,
which equals $8,000.
In this example, the company would capitalize $8,000 of borrowing costs associated with the construction of
the building as part of the building’s cost. The capitalized interest would be added to the cost of the building
and depreciated or amortized over its useful life.
College of Administrative and Financial Sciences
Q4 A long-lived tangible asset is impaired when a company is not able to recover the asset’s
carrying amount either through using it or by selling it. The management to identify whether
the asset has impairment or no impairment conducts an impairment test.
Explain how the impairment test conducted in both situations with numerical examples. (3
Mark)
Answer:
1)
Impairment when the asset is used:
In this situation, the management assesses whether the carrying amount of the asset can be recovered through
its continued use. The impairment test compares the estimated future cash flows generated by the asset with it
.carrying amount
:Example
Let’s say a company owns a manufacturing machine with a carrying amount of $100,000. The management
estimates the future cash flows from the machine to be $80,000. They also determine that the machine’s fair
value less costs to sell is $85,000. In this case, the management would compare the higher of the machine’s
value in use ($80,000) and its fair value less costs to sell ($85,000) with its carrying amount.)100,000$(
If the carrying amount is higher than the higher of the two values ($100,000 > $85,000), it indicates that the
asset is impaired. The impairment loss would be the excess of carrying amount over the recoverable amount,
which is the higher of the value in use or fair value less costs to sell ($100,000 – $85,000 = $15,000). This
impairment loss is recognized in the company’s financial statements as an expense.
.2) Impairment when the asset is to be sold:
In this situation, the management assesses whether the carrying amount of the asset can be recovered through
its sale. The impairment test compares the carrying amount of the asset with its fair value less costs to sell.
Example:
Let’s consider the same manufacturing machine with a carrying amount of $100,000. The management
determines that the fair value of the machine less costs to sell is $90,000. In this case, the management would
compare the fair value less costs to sell ($90,000) with the carrying amount.)100,000$(
If the carrying amount is higher than the fair value less costs to sell ($100,000 > $90,000), it indicates that the
asset is impaired. The impairment loss would be the excess of carrying amount over the fair value less costs to
sell ($100,000 – $90,000 = $10,000). This impairment loss is recognized in the company’s financial statements
as an expense.
.