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ACT B212 Introduction to Accounting II

Assignment 1

Due date: 10 March 2023

Weighting: 20% of the total marks for this course

Coverage: Units 1 and 2

Important note

You must use word processing software (such as Microsoft Word) to prepare assignments, and submit them via the Online Learning Environment (OLE). All assignments must be uploaded to the OLE by the due date.

Failure to upload an assignment to the OLE in the required format may result in the score for the assignment being adjusted to zero.

Question 1 (50 marks)

Lorraine and Kenny established a partnership to operate a nail salon and the related information is shown below.

20x2

2 Jan	The partnership was formed. Both partners agreed that Kenny injected to the partnership $180,000 cash, a building worth $600,000, and the partnership assumed a liability of $300,000 for Kenny’s long-term loan associated with the building. Lorraine contributed $120,000 cash, a vehicle of $50,000 and equipment worth $150,000 to the partnership.
31 Dec	During 20x2, the partnership earned a profit of $324,000 after tax. The partnership agreement specifies that income and losses are to be divided according to the ratio of capital contributed by each partner after paying annual salaries of $80,000 to Kenny and $60,000 to Lorraine, and allowing a 5% interest on beginning capital investments.
20x3
1 Jan	The partners decided to take in a new partner, Giselle. She invested $250,000 in the partnership for a 20% interest in the business.
Required:

a Prepare journal entries to record the establishment of the partnership

on 2 January 20x2. (8 marks)

b Prepare the profit and loss appropriation account for the allocation

of income earned in 20x2 to each partner. (18 marks)

c Determine the bonus to any old/new partner(s) when Giselle was

admitted on 1 January 20x3. Support your answers with detailed computations of the capital balances of each partner. (6 marks)

d Prepare journal entries to record the admission of Giselle into the

partnership on 1 January 20x3. (4 marks)

e State two reasons why bonus may exist when a new partner enters a

partnership. (6 marks)

f After a few years, the above partnership is being liquidated.

Giselle’s share of partnership losses exceeds her capital account

balance. Moreover, she is unable to meet the deficit from her

personal assets. It is agreed that the capital deficiency suffered by

Giselle will be equally shared by Lorraine and Kenny. Discuss and

explain whether this relieves Giselle’s liability. (8 marks)

Note: No explanations for journal entries are required.

Question 2 (25 marks)

a State three advantages of operating a business in the form of a

limited

b Prepare journal entries for the following transactions and events that

took place during the year 20x2. Explanations are not required. (19 marks)

Fat Fat Limited (‘FF’) is a company listed in Hong Kong and the

principal business is operating an online job-seeking platform. With

abundant cash on hand but with limited investment alternatives,

the Board of Directors of FF is considering (1) buying back its

shares from the market and/or (2) paying out more dividends to

shareholders. FF had 200,000 ordinary shares in issue at 1 January

20x2. FF has a financial year end on 31 December.

15 January	Declared a cash dividend of $0.5 per share; the date of record is 22 January.
29 January	Paid the cash dividend declared on 15 January
22 February	Paid $300,000 in cash to buy back 20,000 shares from the market
30 March	Declared a cash dividend of $0.65 per share; the date of record is 6 April.
13 April	Paid the cash dividend declared on 30 March
21 July	Declared a 25% share dividend to shareholders when the share price was quoted at $15 per share
15 August	Issued the share dividend declared on 21 July
21 October	Declared a cash dividend of $0.45 per share; the date of record is 29 October.
5 November	Paid the cash dividend declared on 21 October

Question 3 (25 marks)

Ace Ltd issued 12% bonds with a total face amount of $300,000 on 1 January 2022. Total cash proceeds of $315,227.08 were received by the company. The bonds mature in 2024 (three years). The market interest rate at issuance was 10%. Interest is paid semi-annually on 30 June and

31 December.

Required:

a Use the effective interest method to complete the amortisation table

for the issued bonds. Please round your answer to two decimal

points. (12 marks)