Reference no: EM132579701

HI5020 Corporate Accounting Tutorial Questions Assignment - Holmes Institute, Australia

Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit.

Unit Learning Outcomes Assessed -

1. Examine conceptual issues and the sources of authority for the accounting requirements which apply to reporting by Australian companies and corporate groups, including Company Law, International and Australian Accounting Standards, and Stock Exchange requirements;

2. Critically analyse and interpret the financial statements and other disclosures produced by Australian companies and corporate groups;

3. Apply Australian Accounting Standards and Corporate Legislation to the financial reporting processes of a range of corporate forms including companies and joint ventures;

4. Evaluate financial accounting problems and select appropriate accounting strategies for the accounting entity;

5. Prepare accounting reports for companies and other corporate forms that meet the compliance requirements of the professional and legal bodies in Australia;

6. Make judgments about appropriate use of accounting standards and accurately apply appropriate treatments and communicate these outcomes to a diverse range of stakeholders.

The questions to be answered are -

Question 1 - Tea Tree Bay Ltd acquires a Gizmo Machine from Jetsons Ltd for the following consideration:

Cash: $20,000

Land: In the books of Tea Tree Bay Ltd the land is recorded at its cost of $100,000. It has a fair value of $140,000.

Equipment: In the books of Tea Tree Bay Ltd the equipment is recorded at a cost of $50,000. The equipment has an accumulated depreciation balance of $20,000. The fair value of the equipment is $23,000.

Assumption of liability: Tea Tree Bay Ltd also agrees to assume the liability of Jetsons Ltd's bank loan of $30,000 as part of the Gizmo Machine acquisition.

Other associated costs: Tea Tree Bay Ltd also spend $5,000 as the installation cost. Testing cost was $2,500. Transportation cost for the machine was $700. During first year of operation, the company paid $650 as the maintenance cost for the machine.

Required -

a) Calculate the acquisition cost of the Gizmo Machine that will be used as the base for future depreciation charge.

b) Provide the journal entries that would appear in Tea Tree Bay Ltd's books to account for the acquisition of the Gizmo Machine.

c) Will the maintenance cost be included in the acquisition cost of the machine? Justify your answer. (maximum 100 words)

Question 2 - a) What factors should be considered in determining the issue price of a debenture.

b) On 1 July 2018 Bombo Ltd issues $2 million in six-year debentures that pay interest each six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a rate of return of 6 per cent. Interest expense is determined using the effective-interest method.

Required -

(i) Determine the issue price of the debenture.

(ii) Provide the journal entries at: 1 July 2018, 30 June 2019, & 30 June 2020.

Question 3 - RCK Ltd issues a prospectus inviting the public to subscribe for 90 million ordinary shares of $2.00 each. The terms of the issue are that $1.00 is to be paid on application and the remaining $1.00 within one month of allotment.

Applications are received for 108 million shares during July 2018. The directors allot 90 million shares on 15 August 2018. All applicants receive shares on a pro rata basis. The amounts payable on allotment are due by 20 September 2018. By 20 September 2018 the holders of 18 million shares have failed to pay the amounts due on allotment. The directors forfeit the shares on 30 September 2018.

The shares are resold on 15 October 2018 as fully paid. An amount of $2.00 per share is received. The balance of forfeited shares is refunded on 20 October 2018.

Required - Provide the journal entries necessary to account for the above transactions and events.

Question 4 - Provide some examples of items that would be adjusted directly against equity, rather than being included as part of profit or loss. (maximum 650 words)

Question 5 - Fool's Paradise Ltd had cash and cash equivalents at 1 January 2019 of $400,000. The transactions of Fool's Paradise Ltd for the year to 31 December 2019 are as follows:

Borrowed $850,000 with a 9-month loan payable

Received $6,340,000 cash for customer accounts

Sold for $360,000 cash a plant asset with a carrying amount of $180,000

Issued ordinary shares for $480,000 cash

Purchased a plant asset for $650,000; $237,500 in cash and $412,500 in loan

Exchanged 60,000 shares for land with a fair value of $1,000,000

Received a $350,000 dividend in cash

Received $25,000 interest from term deposit

Invested $500,000 cash on the short-term money market

Paid fixed-term loan principal of $900,000 and interest of $90,000

Cash payments for supplier's accounts $6,300,000

Dividend paid during the period $200,000

Wages expense shown in the income statement is $75,000. At the end of the year the balance sheet shows prepaid Wages expense of $65,000. There was a prepaid Wages expense of $35,000 at the beginning of the year.

Required - Prepare the statement of cash flows of Fool's Paradise Ltd for the year to 31 December 2019.