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AC201-BBA-2-2016

Prep

AC201 Fundamental Accounting


Prep

Conceptual understanding:

Required: Mark  to identify whether the statement is [T]rue or [F]alse.


[T]rue or [F]alse Statement
[T] | [F] 1. Copyright is classified as part of property, plant, and equipment.
[T] | [F] 2. The depreciation method chosen does not have any impact on the depreciable
amount of an asset.
[T] | [F] 3. Sum of the years’ digits method is the only method that takes the useful life into
account when calculating the depreciation.
[T] | [F] 4. Double declining balance method yields twice as much as the depreciation expense
under the straight line method.
[T] | [F] 5. Bonds premium is an adjunct liability account.
[T] | [F] 6. The bond will be issued at a premium if the stated rate is greater than the market rate
at the issuance date.
[T] | [F] 7. The interest expense under the effective interest amortization method is determined
by PAR x MARKET RATE x TIME.
[T] | [F] 8. The entry to record the interest expense will have negative impact on the bonds
discount balance.
[T] | [F] 9. Treasury share will be recorded as a reduction in share premium balance.
[T] | [F] 10. The public company limited is required to set aside at least 5% of the profit after
deducting the deficit brought forward (if any) to be statutory reserve until the statutory
reserve reaches 10% of the registered capital.
[T] | [F] 11. The company cannot declare dividend if it does not have enough cash on hand at the
date of declaration.
[T] | [F] 12. The cumulative preferred shareholders have less risk compared to the
noncumulative preferred shareholders.
[T] | [F] 13. Debt securities can only be classified as investment in held-to-maturity.
[T] | [F] 14. Only equity securities can be classified as investment in subsidiary.
[T] | [F] 15. Unrealized holding gain (loss) from investment in available-for-sale is part of other
comprehensive income.
[T] | [F] 16. Investment in trading may be classified as either current or noncurrent assets.
[T] | [F] 17. Under indirect method of statement of cash flows, an increase in unearned service
revenue will be added to profit for the year to determine operating cash flows.
[T] | [F] 18. Cash paid to acquire raw materials is part of investing cash flows.
[T] | [F] 19. Cash paid for dividend may be classified as either operating cash flows or financing
cash flows.
[T] | [F] 20. Direct method and indirect method yield identical amount of operating cash flows.
AC201-BBA-2-2016
Prep

Required: Mark  to identify whether the statement is [T]rue or [F]alse.


[T]rue or [F]alse Statement
[T] | [F] 1. Copyright is classified as part of property, plant, and equipment.
[T] | [F] 2. The depreciation method chosen does not have any impact on the depreciable
amount of an asset.
[T] | [F] 3. Sum of the years’ digits method is the only method that takes the useful life into
account when calculating the depreciation.
[T] | [F] 4. Double declining balance method yields twice as much as the depreciation expense
under the straight line method.
[T] | [F] 5. Bonds premium is an adjunct liability account.
[T] | [F] 6. The bond will be issued at a premium if the stated rate is greater than the market rate
at the issuance date.
[T] | [F] 7. The interest expense under the effective interest amortization method is determined
by PAR x MARKET RATE x TIME.
[T] | [F] 8. The entry to record the interest expense will have negative impact on the bonds
discount balance.
[T] | [F] 9. Treasury share will be recorded as a reduction in share premium balance.
[T] | [F] 10. The public company limited is required to set aside at least 5% of the profit after
deducting the deficit brought forward (if any) to be statutory reserve until the statutory
reserve reaches 10% of the registered capital.
[T] | [F] 11. The company cannot declare dividend if it does not have enough cash on hand at the
date of declaration.
[T] | [F] 12. The cumulative preferred shareholders have less risk compared to the
noncumulative preferred shareholders.
[T] | [F] 13. Debt securities can only be classified as investment in held-to-maturity.
[T] | [F] 14. Only equity securities can be classified as investment in subsidiary.
[T] | [F] 15. Unrealized holding gain (loss) from investment in available-for-sale is part of other
comprehensive income.
[T] | [F] 16. Investment in trading may be classified as either current or noncurrent assets.
[T] | [F] 17. Under indirect method of statement of cash flows, an increase in unearned service
revenue will be added to profit for the year to determine operating cash flows.
[T] | [F] 18. Cash paid to acquire raw materials is part of investing cash flows.
[T] | [F] 19. Cash paid for dividend may be classified as either operating cash flows or financing
cash flows.
[T] | [F] 20. Direct method and indirect method yield identical amount of operating cash flows.
AC201-BBA-2-2016
Prep

Property, Plant, and Equipment:


Information:
Company A acquired the machine at a cost of ฿3,500,000 on Jan. 1, 20X1. The Company estimated the useful life
for 8 years and the residual value of ฿450,000. The estimated total capacity is 400,000 units. The actual units
produced in Year 20X1 – 20X8 are 65,000, 150,000, 55,000, 120,000, 50,000, 25,000, 23,000, and 12,000 units,
respectively.

Required: Determine the followings:

Straight-line method:

(1) Depreciation expense for the year 20X2


฿,,
(2) Accumulated depreciation at the year-end 20X2
฿,,
(3) Book value at the year-end 20X2
฿,,
(4) If on Dec. 31, 20X2, the company revised the useful life to 10 years
total and the residual value to ฿250,000, determine the depreciation ฿,,
expense for the year 20X3.
(5) Continued from (4): If on Dec. 31, 20X3, the company sold the
machine for ฿2,750,000, determine the gain or loss on sale of machine. ,,
฿
Gain or Loss

Double-declining balance method:

(6) Depreciation expense for the year 20X3


฿,,
(7) Accumulated depreciation at the year-end 20X3
฿,,

Sum-of-the-years’ digits method:

(8) Depreciation expense for the year 20X4


฿,,
(9) Book value at the year-end 20X4
฿,,

Unit-of-production method:

(10) Depreciation expense for the year 20X5


,,
฿
AC201-BBA-2-2016
Prep

Information:
Company A acquired the machine at a cost of ฿3,500,000 on Jan. 1, 20X1. The Company estimated the useful life
for 8 years and the residual value of ฿450,000. The estimated total capacity is 400,000 units. The actual units
produced in Year 20X1 – 20X8 are 65,000, 150,000, 55,000, 120,000, 50,000, 25,000, 23,000, and 12,000 units,
respectively.

Required: Determine the followings:

Straight-line method:

(1) Depreciation expense for the year 20X2


381,250.00
฿

฿762,500.00
(2) Accumulated depreciation at the year-end 20X2

฿2,737,500.00
(3) Book value at the year-end 20X2

฿310,937.50
(4) If on Dec. 31, 20X2, the company revised the useful life to 10 years
total and the residual value to ฿250,000, determine the depreciation
expense for the year 20X3.
(5) Continued from (4): If on Dec. 31, 20X3, the company sold the
machine for ฿2,750,000, determine the gain or loss on sale of machine. ฿ 323,437.50
Gain or Loss

Double-declining balance method:

(6) Depreciation expense for the year 20X3


492,187.50
฿

฿2,023,437.50
(7) Accumulated depreciation at the year-end 20X3

Sum-of-the-years’ digits method:

(8) Depreciation expense for the year 20X4


423,611.11
฿

฿1,297,222.22
(9) Book value at the year-end 20X4

Unit-of-production method:

(10) Depreciation expense for the year 20X5


฿381,250
AC201-BBA-2-2016
Prep

Bonds Payable:

Information:
ISSUANCE DATE JAN. 1, 20X1
MATURITY DATE DEC. 31, 20X2
PAR 2,500,000
STATED RATE 9% PER YEAR
INTEREST PAYMENT PERIODS SEMIANNUALLY
LIFE 2 YEARS
MARKET RATE 8% PER YEAR

Required: From the information given, determine the followings:


1. Bond price
,,
฿
2. Prepare journal entry to record bond issuance on Jan. 1, 20X1.
Date General Journal Debit Credit
Jan. 1

3. Prepare journal entry to record the first interest payment on Jun. 30, 20X1.
Date General Journal Debit Credit

4. Interest expense for Year 20X1


฿,,
5. Cash interest payment for the Year 20X1
฿,,
6. Carrying amount of Bonds payable at Year-end 20X1
฿,,
7. Interest expense for Year 20X2
฿,,
8. Cash interest payment for the Year 20X2
฿,,
9. Carrying amount of Bonds payable at Year-end 20X2
฿,,
10. Prepare journal entry to record the principal payment on Dec. 31, 20X2.
Date General Journal Debit Credit
AC201-BBA-2-2016
Prep

Information:
ISSUANCE DATE JAN. 1, 20X1
MATURITY DATE DEC. 31, 20X2
PAR 2,500,000
STATED RATE 9% PER YEAR
INTEREST PAYMENT PERIODS SEMIANNUALLY
LIFE 2 YEARS
MARKET RATE 8% PER YEAR
N = 4, I = 4%

Required: From the information given, determine the followings:


1. Bond price
(2,500,000 x 0.85480) + (112,500 x 3.62990) ฿2,545,363.75
2. Prepare journal entry to record bond issuance on Jan. 1, 20X1.
Date General Journal Debit Credit
Jan. 1, 20X1 Dr. Cash 2,545,363.75
Cr. Bonds payable 2,500,000.00
Bonds premium 45,363.75
3. Prepare journal entry to record the first interest payment on Jun. 30, 20X1.
Date General Journal Debit Credit
Jun. 30, 20X1 Dr. Interest expense 101,814.55
Bonds premium 10,685.45
Cr. Cash 112,500.00
4. Interest expense for Year 20X1
(101,814.55 + 101,387.13) 203,201.68
฿

฿225,000.00
5. Cash interest payment for the Year 20X1

฿2,523,565.43
6. Carrying amount of Bonds payable at Year-end 20X1

฿201,434.57
7. Interest expense for Year 20X2

฿225,000.00
8. Cash interest payment for the Year 20X2

฿0
9. Carrying amount of Bonds payable at Year-end 20X2

10. Prepare journal entry to record the principal payment on Dec. 31, 20X2.
Date General Journal Debit Credit
Dec. 31, 20X2 Dr. Bonds payable 2,500,000.00
Cr. Cash 2,500,000.00
AC201-BBA-2-2016
Prep

Investments in Debt and Equity Securities:

Information: Company A has the following investments in debt and equity securities.
Investment in available-for-sale securities
 On Mar. 1, 20X1, the Company acquired the investment in equity securities at a cost of ฿
145,500. The Company classified the investment as available-for-sale securities and intent
to hold the securities for long-term investment horizon.
 During 20X1, the Company received dividend from investment for ฿7,500.
 At year-end 20X1, the fair value of investment amounted to ฿158,500.
Investment in trading securities
 On Dec. 15, 20X1, the Company acquired the investment in equity securities at a cost of ฿
2,200,000. The Company classified the investment as trading securities since the Company
actively traded the securities in the portfolio.
 At year-end 20X1, the fair value of investment amounted to ฿2,180,000.
Investment in held-to-maturity securities
 On Jan. 1, 20X1, the Company acquired investment in debt securities at a cost of ฿
3,133,555. The details regarding the conditions of the bonds are as follows: ฿3,000,000 par
value, 5-year life, 5% stated rate payable every year on Dec. 31, 20X1. The market rate at
the acquisition is 4%.
Statement of Financial Position (Partial) as at December 31, 20X1
Assets Liabilities
Current assets Current liabilities
฿ ฿
฿ Noncurrent liabilities
฿ ฿
Noncurrent assets Total
฿ Shareholders’ equity
฿ ฿
฿ ฿
Total Total
Statement of Comprehensive Income (Partial) for the Year 20X1
Revenues
฿
฿
Expenses
฿
฿
Gain or loss
฿
฿
Profit for the year
Other comprehensive income
฿
฿
Total comprehensive income
AC201-BBA-2-2016
Prep

Information: Company A has the following investments in debt and equity securities.
Investment in available-for-sale securities
 On Mar. 1, 20X1, the Company acquired the investment in equity securities at a cost of ฿
145,500. The Company classified the investment as available-for-sale securities and intent
to hold the securities for long-term investment horizon.
 During 20X1, the Company received dividend from investment for ฿7,500.
 At year-end 20X1, the fair value of investment amounted to ฿158,500.
Investment in trading securities
 On Dec. 15, 20X1, the Company acquired the investment in equity securities at a cost of ฿
2,200,000. The Company classified the investment as trading securities since the Company
actively traded the securities in the portfolio.
 At year-end 20X1, the fair value of investment amounted to ฿2,180,000.
Investment in held-to-maturity securities
 On Jan. 1, 20X1, the Company acquired investment in debt securities at a cost of ฿
3,133,555. The details regarding the conditions of the bonds are as follows: ฿3,000,000 par
value, 5-year life, 5% stated rate payable every year on Dec. 31, 20X1. The market rate at
the acquisition is 4%.
Statement of Financial Position (Partial) as at December 31, 20X1
Assets Liabilities
Current assets Current liabilities
Investment in TRD ฿2,180,000 ฿
฿ Noncurrent liabilities
฿ ฿
Noncurrent assets Total
Investment in AFS ฿158,500 Shareholders’ equity
Investment in HTM ฿3,108,897 OCI: Unrealized ฿
฿ holding gain -- AFS ฿13,000
Total Total
Statement of Comprehensive Income (Partial) for the Year 20X1
Revenues
Dividend revenue ฿7,500
Interest revenue ฿125,342
Expenses
฿
฿
Gain or loss
Unrealized holding loss -- TRD (฿20,000)
฿
Profit for the year
Other comprehensive income
Unrealized holding gain -- AFS ฿13,000
฿
Total comprehensive income
AC201-BBA-2-2016
Prep

Equity Financing:
Information: Company A has the following equity-related transactions.
Date Details
Jan. 1, 20X1 Company A incorporated as public company limited with 10,000,000 authorized shares (฿1 par).
Mar. 1, 20X1 Company A issued 8,000,000 shares at a price of ฿4.20 per share.
Dec. 31, 20X1 Company A reported profit for the year for ฿2,875,000 and set aside the required amount to statutory reserve
and declared the dividend for ฿500,000.
Apr. 1, 20X2 Company A issued 1,000,000 shares at a price of ฿4.20 per share.
Oct. 1, 20X2 Company A acquired 500,000 treasury shares at a cost of ฿5.00 per share.
Nov. 30, 20X2 Company A reissued 200,000 treasury shares at a price of ฿5.20 per share.
Dec. 31, 20X2 Company A reported profit for the year for ฿3,750,000 and set aside the required amount to statutory reserve
and declared the dividend for ฿1,500,000.
Required: Prepare the statement of changes in equity for the year 20X2.
Share capital Retained earnings Treasury shares Total
Issued and Share Statutory Unappro- Treasury Paid-in capital
paid-up premium reserve priated shares from treasury
retained shre
earnings
AC201-BBA-2-2016
Prep

Information: Company A has the following equity-related transactions.


Date Details
Jan. 1, 20X1 Company A incorporated as public company limited with 10,000,000 authorized shares (฿1 par).
Mar. 1, 20X1 Company A issued 8,000,000 shares at a price of ฿4.20 per share.
Dec. 31, 20X1 Company A reported profit for the year for ฿2,875,000 and set aside the required amount to
statutory reserve and declared the dividend for ฿500,000.
Apr. 1, 20X2 Company A issued 1,000,000 shares at a price of ฿4.20 per share.
Oct. 1, 20X2 Company A acquired 500,000 treasury shares at a cost of ฿5.00 per share.
Nov. 30, 20X2 Company A reissued 200,000 treasury shares at a price of ฿5.20 per share.
Dec. 31, 20X2 Company A reported profit for the year for ฿3,750,000 and set aside the required amount to
statutory reserve and declared the dividend for ฿1,500,000.
Required: Prepare the statement of changes in equity for the year 20X2.
Share capital Retained earnings Treasury shares Total
Issued and Share Statutory Unappro- Treasury Paid-in
paid-up premium reserve priated shares capital
retained from
earnings treasury
share
Beg. Balance 8,000,000 25,600,000 143,750 2,231,250 - - 35,975,000
Share issuance 1,000,000 3,200,000 4,200,000
Treasury shares repurchased (2,500,000) (2,500,000)
Treasury shares reissuance 1,000,000 40,000 1,040,000
Profit for the year 3,750,000 3,750,000
Statutory reserve appropriation 187,500 (187,500) -
Dividend declaration (1,500,000) (1,500,000)
End. Balance 9,000,000 28,800,000 331,250 4,293,750 (1,500,000) 40,000 40,965,000
AC201-BBA-2-2016
Prep

Statement of Cash Flows:

Company A
Statement of Income
For the Years Ended December 31, 20X2
(In Baht)
Sales 4,352,000
Cost of goods sold 2,435,000
Wages and other operating expenses 275,000
Interest expense 74,000
Depreciation expense 100,000 (2,884,000)
1,468,000
Other gains (losses)
Gain on sale of plant assets 52,000
Loss on retirement of bonds (18,500) 33,500
Income before taxes 1,501,500
Income taxes expense (300,300)
Net income 1,201,200
Additional Information:
- Company acquired property, plant, and equipment for ฿800,000.
- Company sold property, plant, and equipment for ฿264,000 cash and realized a gain on sale of ฿52,000.

- Company early retired the bonds payable by paying ฿218,500 cash and realized a loss on retirement of ฿18,500.
- Company issued ordinary shares for ฿300,000 cash.
- Company declared and paid certain amount of dividends.
AC201-BBA-2-2016
Prep

Company A
Statement of Financial Position
As of December 31, 20X2 and 20X1
(In Baht)
20X2 20X1 Changes
Assets
Current assets
Cash 845,000 664,000 181,000
Accounts receivable 275,000 250,000 25,000
Merchandise inventory 64,000 70,000 (6,000)
Prepaid expenses 66,000 4,000 62,000
Total current assets 1,250,000 988,000 262,000
Noncurrent assets
Plant assets 1,060,000 560,000 500,000
Less: Accumulated depreciation (60,000) (48,000) (12,000)
Plant assets, net 1,000,000 512,000 488,000
Total assets 2,250,000 1,500,000 750,000
Liabilities
Current liabilities
Accounts payable 50,000 12,000 38,000
Interest payable 2,000 4,000 (2,000)
Income taxes payable 63,500 34,000 29,500
Total current liabilities 115,500 50,000 65,500
Long-term bonds payable 500,000 700,000 (200,000)
Total liabilities 615,500 750,000 (134,500)
Equity
Ordinary shares 900,000 600,000 300,000
Retained earnings 734,500 150,000 584,500
Total equity 1,634,500 750,000 884,500
Total liabilities and equity 2,250,000 1,500,000 750,000
AC201-BBA-2-2016
Prep

Company _
Statement of Cash Flows
For the Year Ended December 31, 20X_
(in Baht)
Cash flows from operating activities
Net income 1,201,200
Adjustments:
Noncash items
+ Depreciation expense 100,000
Nonoperating items
- Gain on sale of plant assets (52,000)
+ Loss on retirement of bonds 18,500
Changes in current assets and liabilities
- Increases in accounts receivable (25,000)
+ Decreases in merchandise inventory 6,000
- Increases in prepaid expenses (62,000)
+ Increases in accounts payable 38,000
- Decreases in interest payable (2,000)
+ Increases in income tax payable 29,500
51,000
Net cash flows from operating activities OCF 1,252,200
Cash flows from investing activities
Cash paid for acquisition of PPE (800,000)
Cash received from sale of PPE 264,000
Net cash flows from investing activities ICF (536,000)
Cash flows from financing activities
Cash paid for retirement of bonds (218,500)
Cash received from ordinary share issuance 300,000
Cash paid for dividends (616,700)
Net cash flows from financing activities FCF (535,200)
Net change in cash 181,000
Beginning cash balance 664,000
Ending cash balance 845,000