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NanyangTechnologicalUniversityBU8101–Accounting:AUser

Semester2,2014/2015

Seminar5(forweekcommencing16February2015)

(Unlessotherwisestated,questionsaretakenfromWHB17thedition)

ReviewDemonstrationProblemonpages464&465andpage505beforeyoucommenceonthetutorial.

Section1–Tobediscussedinclasswithtutor

AdaptedfromProblem10.1B(page477)

EventsaffectingPhilmar,Inc.,foryearendedDecember31,2015areasfollows:

Anotepayabletoitsbankisduein60days.Arrangementshavebeenmadetorenewthisnoteforanadditional18months.

Interestexpensethatwillresultfromexistingliabilitiesoverthenext12monthsamountedto

$12,000.

Madeayear–endadjustingentrytoaccrueinterestonanotepayable.

Aliabilityclassifiedforseveralyearsaslong-term esduewithinthenext12months.

Earnedanamountpreviouslyrecordedasunearnedrevenue.

Recordedanestimatedliabilityforwarrantyclaims.

Enteredatwoyearcommitmenttobuyallharddrivesfromaparticularrataprice10percentbelowmarket.

Receivednoticethatalawsuithasbeenfiledagainstthe for$8million.Theamountofthe’sliability,ifany,cannotbereasonablyestimatedatthistime.

The’sisinpoorhealthandhaspreviouslysufferedtwoheartattacks.

Receivedcashdepositsfromcustomersforgoodsandservicestobedeliveredoverthenextninemonths.

Instructions:

IndicatetheeffectsofeachofthesetransactionsuponthefollowingelementsofPhilmar’sfinancialstatements.Organizeyouranswersintabularform,usingthecolumnheadingsshownbelow.Use

thefollowingcodeletterstoindicatetheeffectsofeachtransactionontheaccountingelementlistedinthecolumnheadings:Iforincrease,Dfordecrease,andNEfornoeffectandprovideexnations.

Inc

Tran.

Revenue

a.

Shareholders’EquityandIntangibleAssets

TheAnnualGeneralMeeting(“AGM”)forBooHanHoldingsLimited(“BH”)hasbeeninprogressforsometime.ThechieffinancialofficerforBHispresentlyreviewingthe’sfinancialstatementsandiiningtheitemsthatcomprisetheshareholders’equityofthebalancesheetforthefiscalyear,31December2014.Theshareholders’equitysectionofBHat31December2014isasfollows:

$’000s

Preferenceshares-5%cumulative,

1,000,000sharesissuedandoutstanding

100,000

Ordinaryshares-

100,000,000sharesissuedandoutstanding

150,000

Retainedearnings

681,000

Totalshareholders'equity

$931,000

Instructions:

Answerthefollowingquestions,assumingyouwerethechieffinancialofficerofBH:

ShareholderA:“BH’sordinarysharesweretradedonthestockexchangeat$$33.50pershareon31December2014.Thetotalordinarysharesvalueshouldbe$3,000million,buttheamountreflectedinthefinancialstatementsasat31December2014isonly$150,000,000.Howcouldthatbe?”

ShareholderB:“Whatdoestheterm‘cumulative’inrelationtothepreferencesharesmean?”

ShareholderC:“Th ofdirectorsproposedacashdividendof20centspersharetoordinaryshareholdersforthecurrentyeartobeapprovedduringthisAGM.Itdidnotpaydividendsduringthelast2financialyearstopreferenceshareholders.Howmuchdividendswouldbepayabletopreferenceshareholdersandtoordinaryshareholders?”

ShareholderD:Whyweretheoutstandingdividendstopreferenceshareholdersnotaccruedasliabilitiesinthefinancialstatements?”

ShareholderC:“Youmentionedjustnowthattheordinarysharesweretradedatabout4timesbookvaluepershareat31December2014.Couldyoupleaseshowushowdidyouderivethenumber?”

ShareholderA:“BHiscurrentlyintheprocessofraisingfundsbyissuinganother$10,000,000preferencesharestofinancethepurchaseofaho.Whatisthe’srationaleforchoosingpreferencesharesoverlong-termdebt?

ShareholderC:“IsbookvaluepersharetheamountordinaryshareholdersshouldexpecttoreceiveifBHweretoceaseoperationsandliquidate?Couldyouenlightenme?”

ShareholderD:“Iwouldliketoaskaquestionrelatingtotheassetssectionofthebalancesheetat31December2014.Thereisanamountof$500,000Goodwillundertheassetssection.WhatisGoodwill?Howdiditarise?DowedepreciateGoodwilljustlikentassets?”

ReviewMCQsfromtutor

Section2–CompulsoryQuestionsduedate1March2015

DothefollowingintheMcGraw-HillConnecte-site.

Briefexercise9.8(page416)

Problem10.2A(page473)

Problem10.3A(page474)

Exercise11.4(page509)

Exercise11.8(page510)

Self-PracticeProblems

DoSelf-TestQuestions1,2,8,9(pages465&466),1,3,5(page506).

Thefollowingself-practiceproblem