ACCOUNTING PAPER

BCO123 Accounting II Task brief & rubrics

Task: Midterm Timed Assignment

• This is an individual task. Remember that as a student you are bound by the school’s ethics and all the work you submit should be of your own.

• You are required to answer all the questions in the following three exercises.

• You may use the accounting textbook and your notes.

• You should clearly show all your workings.

• For conceptual questions, you should demonstrate thorough understanding of accounting concepts and principles. The student’s work will be assessed

by deepness of analysis, solid judgments, logic of statements, and understanding of implications of accounting and business.

Submission file format: You should submit all your answers in one pdf file, clearly identifying your answer to each question separately. In your file submission,

you should include only your answers. You should not include the questions to avoid high similarity percentage on Turnitin.

Formalities:

• Font: Arial 12,5 pts.

• Text alignment: Justified.

• The in-text References and the Bibliography have to be in Harvard’s citation style.

Launch: WEEK 7 Friday March 12th, 2021, 23:59hrs via Moodle

Submission: WEEK 7 Sunday March 14th, 2021, 23:59hrs via Moodle (Turnitin)

Weight: This task is a 30% of your total grade for this subject.

This task assesses the following learning outcomes:

• Outcome 1: Define liabilities and distinguish between current and long-term liabilities.

• Outcome 2: Account for notes payable and interest expense.

• Outcome 3: Prepare an amortization table allocating payments between interest and principal.

• Outcome 4: Account for bonds issued at a face value.

• Outcome 5: Explain how estimated liabilities, loss contingencies, and commitments are disclosed in financial statements.

EXERCISE 1

As of December 31, 2020, Bauman Corporation has prepared the following information regarding its liabilities and other obligations.

20-year bond issue that matures in one year €800,000

Accrued interest on the 20-year bond issue as of the balance sheet date €68,000

Notes payable, of which €40,000 will be repaid within the next 12 months €200,000

Interest expense that will result from existing liabilities over the next 12 months €92,000

Cash deposits from customers for goods and services to be delivered over the next four months €310,000

Three-year commitment to Peter Smith as chief operating officer at a salary of €150,000 per year €450,000

Note payable due within 90 days (but that is approved to be extended for an additional 12 months) €190,000

Income taxes, of which €195,000 are currently payable and the remainder deferred indefinitely €375,000

Lawsuit pending against Bauman, in which €500,000 is claimed in damages. Legal counsel can make no reasonable estimate of the company’s ultimate liability at

this time.

Instructions:

(1) Define liabilities and distinguish between current and long-term liabilities. (5 points)

(2) Prepare a listing of the Bauman Corporation’s current and long-term liabilities as they should be presented in the company’s December 31, 2020 balance

sheet. (15 points)

(3) Explain why you have excluded any of the listed items in your listing of current and long-term liabilities. (10 points)

(4) Explain how estimated liabilities, loss contingencies, and commitments are disclosed in financial statements. (5 points)

EXERCISE 2

On 31 October 2020, Blissful Corporation incurs a 30-year €600,000 mortgage liability in conjunction with the purchase of a hotel. This mortgage is payable in

equal monthly installments of €6,485 which include interest computed at an annual rate of 12%. The first monthly payment is made on 30 November 2020. This

mortgage is fully amortizing over 360 months.

Instructions:

(1) Complete the amortization table for the first four payments by entering the correct euro amounts in the blank spaces provided. (20 points) Round to the

nearest full number.

Interest Payment Monthly Interest Reduction in Unpaid

Period Date Payment Expense Principal Balance

Issue date

1

2

3

4

(2) Record the first two payments in the general journal. (10 points)

Date Account Titles and Explanation Debit Credit

(3) What is the aggregate amount paid by Blissful Corporation over the 30-year life of the mortgage? What is the total amount paid for interest charges? (10

points)

EXERCISE 3

Maryland Corporation obtained authorization to issue 30-year bonds with a face value of €15 million. The bonds are dated May 1, 2020, and have a contract rate

of interest of 8 percent. They pay interest on November 1 and May 1. The bonds were issued on July 1, 2020, at 100 plus two months’ accrued interest.

Instructions:

Prepare the necessary journal entries in general journal form on the following.

(1) August 1, 2020, to record the issuance of the bonds. (5 points)

(2) November 1, 2020, to record the first semi-annual interest payment on the bond issue. (5 points)

(3) December 31, 2020, to record interest expense accrued through year-end. (Round to the nearest full number.) (5 points)

(4) May 1, 2021, to record the second semi-annual interest payment. (Round to the nearest full number.) (5 points)

(5) What was the prevailing market rate of interest on the date that the bonds were issued? Explain. (5 points)

Date Account Titles and Explanation Debit Credit

Points are stated at the end of each question.

Rubrics

Descriptor

9-10 The student demonstrates an excellent understanding of the concepts.

8-8.9 The student demonstrates a good understanding of the concepts.

7-7.9 The student demonstrates a fair understanding of the concepts.

6-6.9 The student demonstrates some, but insufficient understanding of the concepts.

3-5.9 The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.

1-2.9 The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.

0 The student leaves the question blank or cheats.