Midterm Exam Solutions

AFM 391 Winter 2011
Intermediate Financial Accounting 2
University of Waterloo
Midterm Exam Solutions
Professor Khim Kelly

Part A

1) B 2) C 3) A 4) D 5) C 6) B

Part B 1) D
$4,000,000 (IFRS is applicable because Street is listed on TSE, no agreement was in place at year end).

2) C PV of $8,000,000 at 5% for 15 years. 3) D $540,000 – $435,000 = $105,000 ($600,000 + $72,000) – $540,000 = $132,000. 4) A

5) C = $2.70.

6) B
$4,800 fair value less $500 recorded cost = $4,300 gain.

7) B

Part C: Long-Term Bonds (19pts)
On April 1, 2010, BGL Ltd. issued $600,000, 9% bonds (dated January 1, 2010) for $645,442, including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2020. On July 1, 2012, BGL retired $180,000 of the bonds at 102 plus accrued interest. BGL uses straight-line amortization of any bond discount or bond premium.

Required
1 pt if ALL the dates of journal entries in parts a and b are correct
(a) Record the journal entries for the issuance of the long-term bonds, and the interest expense and amortization of bond discount or premium at year end (i.e., Dec 31, 2010). (9 pts) April 1, 2010 Cash (0.5) 645,442 (1) Bonds Payable (0.5) 631,942 (1) Interest Expense ($600,000 × 9% × 3/12) (0.5) 13,500 (1) Dec 31, 2010 Dr Interest expense (0.5) 51,543 (1) Dr Bonds payable (31942/117 * 9) (0.5) 2457 (1) Cr Interest payable (0.5) 54,000 (1) Alternative answer 1 April 1, 2010 Cash (0.5) 645,442 (1) Bonds Payable (0.5) 631,942 (1) Interest Payable ($600,000 × 9% × 3/12) (0.5) 13,500 (1) Dec 31, 2010 Dr Interest expense (0.5) 38,043 (0.5) Dr Interest payable (0.5) 13,500 (0.5) Dr Bonds payable (31942/117 *9) (0.5) 2457 (0.5) Cr Cash (0.5) 54,000 (1) Alternative answer 2