ADMS 3595X

Mid Term Mock Exam

Solutions:

Question 1 (MCQ)
1C
2D
3C
4D
5C

Question 2:

Requirement 1

2019

Cash, accounts receivable 4,600,000

Sales revenue 4,600,000

Warranty expense (6% of sales) 276,000

Provision for warranty 276,000

Provision for warranty 31,000

Inventory 9,000
Cash 22,000

2020

Cash, accounts receivable 6,100,000

Sales revenue 6,100,000

Warranty expense (6% of sales) 366,000

Provision for warranty 366,000

Provision for warranty 415,000

Inventory 126,000
Cash 289,000

Warranty expense (8% - 6% of total 20X5 and 20X6 sales) 214,000

Provision for warranty 214,000

Warranty expense (1% of total 20X5 and 20X6 sales) 107,000

Provision for warranty 107,000
 ADMS 3595X
Mid Term Mock Exam

Requirement 2

31 December 2019
Provision for warranty ($145,000 + 276,000 - $31,000) $390,000

31 December 2020
Provision for warranty ($390,000 + $366,000 - $415,000
+ $214,000 + $107,000) $662,000

Question 3:

Requirement 1

Price of bond:
P $80,000 (P/F, 4%, 8) = $80,000 × (.73069) $58,455
I $2,800 (P/A, 4%, 8) = $2,800 × (6.73274) 18,852
$77,307

Requirement 2

Bond Amortization Table

(Stated rate 3.5%; effective rate 4%; semi-annual)

Net
Cash Effective Discount Unamortized Bond
Date Payment Interest Amortization Discount Liability

Opening 2,693 77,307

31 May 2019 2,800 3,092 292 2,401 77,599
30 Nov. 2019 2,800 3,104 304 2,097 77,903
31 May 2020 2,800 3,116 316 1,781 78,219
30 Nov. 2020 2,800 3,129 329 1,452 78,548
31 May 2021 2,800 3,142 342 1,110 78,890
30 Nov. 2021 2,800 3,156 356 754 79,246
31 May 2022 2,800 3,170 370 384 79,616
30 Nov. 2022 2,800 3,184 384 0 80,000

Proceeds of bond = $77,307 + 2/6 of ($77,599 -$77,307) = $77,404

Accrued interest = $80,000 x 7% x 2/12 = $933

Requirement 3
 ADMS 3595X
Mid Term Mock Exam

Discount amortization to 31 May 2019 is $195 ($77,599 -$77,404)