ST.

MARY’S UNIVERSITY
DEPARTMENT OF ACCOUNTING
ADVANCED ACCOUNTING
MID EXAM (30%)

Exam Date: Dec. 03,2013

Time allotted: 1:45hrs

Maximum mark: 30%

Instructor: Abdu

Biniam

Name __________________________________ Section ___________ID No ____________

GENERAL INSTRUCTION

 Be sure to write your name and Id. No on the question paper

 Make sure the exam has 10 multiple choices and 2 workouts
 The use of red pens and pencils is prohibited
 Respect the college’s exam administration regulations and your
invigilators’ too
 Cheating or any attempt to deceive will automatically result in
disqualification
 Attempt all questions as required and give your answer on the answer
sheet provided

Multiple choices

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

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 Part I. Choose the best answer among the given alternatives (10 marks)

1. An operating lease is signed between lessee and lessor. It lasts for 6

years. For the first 3 years, the rent is $5,000 per year; the second 3
years, the rent increases to $6,000 per year. The lessee would record rent
expense in the first year of ________.
A. $11,000 C. $5,000
B. $6,000 D. $5,000
2. On January 1, 2012, Andu company entered into a 3-year non-
cancellable lease of equipment with rental payments of $21,500 paid on
December 31 of each year; the rental payments include $1,500 for
property taxes: the incremental borrowing rate is 8%; the lease contains
a bargain purchase option of $5,000 at the end of the lease; the
equipment has an estimated useful life of 5 years; the equipment has an
estimated salvage value of $0. What is the present value of the minimum
lease payment as of January 1, 2012?
A. $51,542 C. $55,665
B. $55,511 D. $73,593
3. A joint venture is a contractual arrangement whereby two or more
parties undertake an economic activity:
A. Where one party dominates the operations.
B. Subject to joint control
C. And one party exerts significant influence
D. In which one of the parties has the capacity to exercise control

Answer question 4 and 5 based on the following information

Amir and bandira entered into a joint venture contract for sharing the profits
or losses in the ratio of 60% and 40% respectively. Assume there is no separate
set of books are maintained for the joint venture and each venture gets
complete information from other venture. The following data is obtained from
the books of Amir after all transactions of the venture except the profit/ loss
share and final settlement.

Joint venture Account

Debit Side Br Credit Side Br
To Bank A/c (goods purchased) 150,00 By Belachew 160,000
To Bank A/c (Expenses) 0 By Belachew 17,500
To Belachew (Expenses) 12,000 By Belachew (Stock) 10,000
7,250

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 Bandira’s Account
Debit Side Br Credit Side Br
To Joint venture A/c 9sales) 160,000 By Joint Venture A/c (Exp) 7,250
To Joint Venture A/c (Sales through agent) 17,000
To joint Venture A/C (Stock taken) 10,000

4. What are the profit or loss shares to Amir and Bandira from the venture?
A. Br 10,950 and Br. 7,300 loss respectively
B. Br 10,950 and Br. 7,3000 Profit Respectively
C. Br 18,250 and Br 10,950 loss respectively
D. Br 18,250 and Br 10950 profit respectively
5. When goods are purchased for the joint venture, the amount is debited
to:
A. Purchases Account C. Joint Bank Account
B. Joint Venture account D. Capital Account
6. Milan Limited and Alex Limited agreed to form a joint venture to
manufacture laminated wood products. To start the venture the ventures
agreed to contribute cash of $600,000 each. Which of the following is an
appropriate entry to record this transaction?
A. Millan and Alex A/c are debited for $600,000 each and cash is
credited for $1,200,000
B. Joint Venture is Debited and Cash is Credited for $1,200,000
C. Cash is Debited for $1,200,000 and Milan and Alex A/c are
credited for $600,000 Each
D. Cash is debited and Joint Venture is Credited for $1,200,000
7. In Computing Depreciation of a leased asset, the lessee should subtract
A. A Guaranteed residual value and depreciate over the life of the
asset
B. A guaranteed residual value and depreciate over the term of the
lease
C. An unguaranteed residual value depreciate over the life of the
asset
D. An unguaranteed residual value and depreciate over the term of
the lease
8. Which of the following is a correct statement of one of the capitalization
criteria?
A. The lease transfers ownership of the property to the lessor
B. The lease contains a purchase option
C. The minimum lease payments (excluding executor costs) equal
or exceed 90% of the fair value of the leased property

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 D. The lease term is equal to or more than 75% of the estimated
economic life of the leased property.

Use the following information to answer questions of 9 and 10

On January 1, 2008, Dany Inc. signs a 10-year non-cancelable lease

agreement to lease a storage building from Garr Warehouse Company.
Collectability of lease payments is reasonably predictable and no important
uncertainties surround the amount of costs yet to be incurred by the lessor.
The following information pertains to this lease agreement

 The agreement requires equal rental payments at the end of each year
 The fair value of the building on January 1,2008 is $3,000,000
 The building has an estimated economic life of 10 years, with no residual
value. Dany depreciates similar buildings on the straight-line method
 At the termination of the lease, the title to the building will be
transferred to the lessee
 Dany’s incremental borrowing rate is 11% per year. Garr warehouse Co.
set the annual rental to insure a 10% rate of return. The implicit rate of
the lessor is known by Dany, Inc
 The yearly rental payment includes $10,000 of executor costs related to
taxes on the property
9. What is the amount of the minimum annual lease payment? 9rounded to
the nearest dollar)
A. $498,236 C. $478,236
B. $488,236 D. $188,237
10. Dany Inc. would record depreciation expense on this storage building in
2008 of _____ (Rounded to the nearest dollar)
A. $0 C. $488,237
B. $250,000 D. $300,000

Part II. Show the necessary computations clearly on space provided (10
pts)

H Corporation and A company invested $200,000 and $300,000 Respectively in

an unincorporated joint venture on January 1,2012. They agreed to share the
profit or loss of the joint venture in 2:3 ratio. Condensed financial statements
for the joint venture were as follows.

H and A Joint Venture

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 Income Statement
For year Ended December 31,2012
Revenue $1,250,000
Less: Cost and Expenses 937,5000
Net income $312,500
Division of Net income:
H Corporation $??? = (a)
A Company ???=(b)
Total $312,500

H and A Joint Venture

Balance Sheet
December 31,2012
Assets
Current Assets $1,000,000
Other assets 1,500,000
Total Assets $2,500,000
Liabilities and Venturers’ Capital
Current Liabilities $500,000
Long-term debt 1,187,500
Venturers’ capital:
H Corporation $???=(x)
A Company ???=(y) 812500
Total Liabilities and venturers’ Capital $2,500,000

Required:

A. Determine the profit share of h Corporation & A Company from H and A

Joint venture. (Find the amount of (a) and (b)] (2 pts)

B. Determine the equity of H Corporation and A Company from the Joint

venture.(find )the amount of (x) and (y)] (2pts)

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 C. Under proportionate share method of accounting, prepare the necessary
journal entries on the books of h corporation and A company for their
investment in the joint venture (6)

Books of H Corporation Books of A company

Part III. Show the necessary computations clearly on space provided (10
pts)

Haw corporation entered into a 3-year non-cancellable lease of equipment on

January 1, 2011 with rental payments of $129,000 paid on January 1 of each
year.

 The rental payments include $9,000 for property taxes

 The implicit interest rate in the lease is 8%
 The lease contains a unguaranteed residual value of the equipment
of $30,000 at the end of the lease.
 The leased equipment has a carrying value (Cost) of $357,807 and
a fair market value of $357,807
 The equipment has an estimated useful life 4 years
 The fiscal year runs from January 1-december 31 of each year

Required:

A. Determine the classification of lease (whether it is operating or capital

lease) by the lessor and why? (1pt)

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B. Prepare lease amortization schedule by the lessor (4pts)

C. Prepare all the necessary journal entries for 3 years of the lease
including yearend adjustments (5pts)

Good Luck